India's business leaders find 'clear signs' of cost pressures building up: IIM-A survey

How do current costs per unit compare with this time last year? – % responses

By A Representative
The latest Indian Institute of Management-Ahmedabad’s (IIM-A’s) Business Inflation Expectations Survey (BIES), which seeks to examine the amount of slack in the economy in the short and medium term by polling a panel of business leaders, has found that, following the Covid-19 crisis, the perceptions data suggest “clear signs of cost pressures building up.”
“Over 57% of the firms believe that the current cost increase is 3.1% and above as compared to the same time last year”, the survey results, made available by IIM-A, says, noting, “Over two-fifths of the firms perceive that the current cost increase is over 6%.” An IIM-A note on the survey adds, “It is pertinent to note that now over one-firth of the firms perceive that current cost increase is over 10%.
The report says, the effect of the extension of lockdown against the backdrop of Covid-19 spread is seen in the results of the survey. The economy has come to a standstill, and inflation expectations are rising fast, regretting, “The Covid-19 pandemic and subsequent lockdown of the economy have had an impact on the BIES survey responses for April 2020.”
The result was, “In the first fortnight of May 2020, there were very few responses received. Due to obvious reasons, many firms declined to provide data on sales and profit expectations. Finally, the questionnaire was shortened and the data on only inflation/cost were sought.”
Accordingly, survey results for inflation expectations and cost perceptions alone have been declared, says the IIM-A note, adding, the number of respondents in the latest BIES round has “gone below 1,000” as against around 2,000 respondents during previous surveys.

One year ahead business inflation expectations (%)

Carried out under Prof Abhiman Das, introduced BIES as a monthly exercise at IIM-A May 2017, questions are asked about year-ahead cost expectations and the factors influencing price changes, such as profit, sales levels, etc. The survey is claimed to be 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 results of the survey suggest that one year ahead business inflation expectations in April 2020, “as estimated from the mean of individual probability distribution of unit cost increase, have declined by 20 basis points to 4.37% from 4.57% reported in March 2020.” However, the IIM-A note says, “It has still remained over 4% for two consecutive months.”
At the same time, the note says, “Uncertainty of business inflation expectations, as captured by the square root of the average variance of the individual probability distribution of unit cost increase, has marginally declined to 2.0% in April 2020 from around 2.1% in March 2020.”

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