India's 55% firms perceive significant, sustained high-cost pressure: IIM-A survey

Costs per unit compare: % responses

By A Representative
A new Indian Institute of Management-Ahmedabad (IIM-A) survey, involving responses from executives of around 1,200 companies across India, has said that the cost perceptions data indicates “sustained high-cost pressures”, with over 55% of the firms perceiving significant (over 6%) cost increase.
Called Business Inflation Expectations Survey (BIES), which seeks to provide 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, the IIM-A report says, “Around 30% of the firms perceive that costs have increased very significantly (over 10%) – further up from the percentage responses received in July 2021.”
While stating that “sales expectations have further improved”, the survey report says, “Around 36% of the firms in August 2021 report that sales are ‘much less than normal’ as compared to the sentiment reported in July 2021.” It adds, “At the same time, firms reporting that sales are ‘somewhat greater than normal’ have increased to 14% in August 2021 from 9% reported in July 2021.”

Sales levels: % response

As for profit margins, the report says, “Around 44% of the firms in the sample in August 2021 report ‘much less than normal’ profit – further down from 46% reported in July 2021”, adding, “About 17% of the firms now report that profit expectations is ‘about normal’ – up from 14% reported in July 2021.”
The report says, “One year ahead business inflation expectations in August 2021, as estimated from the mean of individual probability distribution of unit cost increase, have declined by 37 basis points to 5.22% from 5.59% reported in July 2021.”
It adds, however, “The 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 remained around 1.9% during July-August 2021.”

Profit margins: % response

According to the report, “Respondents were also asked to project one year ahead CPI headline inflation through an additional question using a probability distribution.” The question coincided with “the month of Reserve Bank of India’s bi-monthly monetary policy announcement.”
It adds, “Survey responses indicate a decline in one year ahead CPI headline inflation expectation. The businesses in August 2021 expect one year ahead CPI headline inflation to be 4.98%, down from 5.36% reported in July 2021, with a low standard deviation of 0.97%. It has remained above 4% since February 2020.”

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