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India's 43% firms say their profit margin is "much less than normal", highest in four months: IIM-A survey

By Our Representative
The latest Indian Institute of Management-Ahmedabad's Business Inflation Expectations Survey (BIES), which seeks to examine the amount of slack in the economy by polling a panel of business leaders, has said that over 60% of the firms in July 2018 reported increase in costs has been more than 3% during the last one year.
Assessing cost increase over the last one year, this is "up significantly from around 54% observed in June 2018", adding, "The proportion of firms perceiving significant cost increase has also gone up to 37% in July 2018 from 29% in June 2018."
The BIES report further says, "Responses of 43% of the firms in the sample in July 2018 indicate ‘much less than normal’ profit margins, significantly up from June 2018 level. Proportion of firms reporting ‘normal or above normal’ profit has declined to 32% in July 2018 from around 38% recorded during May-June 2018."
A monthly survey, BIES asks questions about year-ahead cost expectations and the factors influencing price changes, such as profit, sales levels, etc. BIES report claims, the survey is "unique in that it goes straight to businesses, the price setters, rather than to consumers or households, to understand their expectations of the price level changes."
The report says, "One year ahead business inflation expectation in July 2018, as estimated from the mean of individual probability distribution of unit cost increase, has increased sharply to 3.8% from 3.1% observed in June 2018", though adding, "Business inflation expectation has remained fairly range bound between 3-4% since May 2017."
It adds, "Uncertainty of business inflation expectations in July 2018, as captured by the square root of the average variance of the individual probability distributions of unit cost increase, remained elevated at around 2.25%."
According to the report, "One major advantage of BIES is that one can get a probabilistic assessment of inflation expectations and thus can get a measure of uncertainty. It also provides an indirect assessment of overall demand condition of the economy. Results of this survey are, therefore, useful in understanding the inflation expectations of business and complement other macro data required for policy making."
It adds, "Companies, mostly in the manufacturing sector, are selected based on certain sampling criteria from the list of companies as available with the Ministry of Corporate Affairs (MCA)."
The results are based on responses of 1,941 companies.

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