Costs built up, sales, profits 'much less than normal' ahead of COVID-19 crisis: Survey

Current costs per unit (% responses)

By A Representative
The Business Inflation Expectations Survey (BIES) by the Indian Institute of Management-Ahmedabad (IIM-A) for the month of February, just ahead of the outbreak of the coronavirus crisis in India, has suggested that the Indian economy had already begun to feel a crisis situation in February, with signs of costs building up, and sales and profits reaching much less than normal.
The survey, which involved responses of over 1,200 companies, suggested that the cost perceptions data show early signs of pressures building up. Nearly 50% of the firms believed that the current cost increase was 3.1% and above as compared to the same time last year, and over 30% of the firms perceived that the current cost increase was over 6%, the highest since 2017.
Further, it found, over 15% firms perceive that current cost increase was over 10%.

Sales levels (% responses)

The survey also showed that, in February 2020, over 64% of the firms reported that sales were much less than normal as against 45% reported in January 2020. Around 85% of the firms in the sample reported that sales were ‘somewhat or much less than normal’ as against 70% reporting in January 2020.
Coming to profits, the survey said that the proportion of firms in the sample reporting ‘much less than normal’ profit jumped up by over 20% to 65% in February 2020. Over 87% of the firms in the sample expected ‘much less than normal or somewhat less than normal’ profit margins. The proportion remained around 75% since June 2019, it added.

Profit margins (% responses)

Claimed the survey, BIES provides ways to examine the amount of slack in the economy by polling a panel of business leaders about their inflation expectations in the short and medium term. A monthly survey, it asks questions about year-ahead cost expectations and the factors influencing price changes, such as profit, sales levels, etc.
The survey goes straight to businesses, the price setters, rather than to consumers or households, to understand their expectations of the price level changes in order to get a probabilistic assessment of inflation expectations, thus getting a measure of uncertainty. At the same time, it provides an indirect assessment of overall demand condition of the economy. Companies are selected primarily from the manufacturing sector.

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