Whither recovery? High costs, muted sales severely affect industry profits: IIM-A survey

By A Representative
The Business Inflation Expectations Survey (BIES) by the Indian Institute of Management-Ahmedabad (IIM-A), 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, has regretted that high cost increase along with muted sales has "severely affected the profit margin expectations of firms."
The survey results have been released amidst a top Reserve Bank of India expert, Ashima Goyal, claiming that India's economic recovery from Covid-19 is progressing well, with better than expected growth rates, and the trajectory will continue, though warning, persistently high oil prices can play spoilsport.
Based on the responses from around 1,000 companies, the latest 57th round of survey -- which seeks answers to questions related to year-ahead cost expectations and the factors influencing price changes, such as profit and sales levels -- says, "The cost perceptions data indicates further hardening of cost pressures. Over 62% of the firms in this round of the survey perceive significant (over 6%) cost increase, as against 57% reported in the earlier two rounds."

It adds, "Over 36% of the firms perceive that costs have increased very significantly (over 10%), as compared to 27% reported in the earlier round. For the first time, over 1/3rd of the firms reported more than 10% cost increase."
The survey notes, "Sales expectations continue to be subdued after they dropped sharply in December 2021 due to Covid/Omicron outbreak. Percentage of firms reporting ‘much less than normal’ sales remained around 36% for the last two rounds.
It adds, "Over 62% of the firms in January 2022 report that sales are ‘much or somewhat less than normal’. 'Normal' means as compared to the average level obtained in the preceding 3 years, excluding the Covid-19 period."
The result of high cost increase and muted sales is, profit margin expectations have been "severely affected", the survey asserts, adding, "Over 54% of the firms in the sample report ‘much less than normal’ profit – significantly up from 42% reported in December 2021."

Claiming 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 IIM-A survey futher says, "One year ahead business inflation expectations in January 2022, as estimated from the mean of individual probability distribution of unit cost increase, have increased significantly by 49 basis points to almost 6.00% from 5.45% reported in December 2021.
It adds, "The uncertainty of business inflation expectations in January 2022, as captured by the square root of the average variance of the individual probability distribution of unit cost increase, has also increased sharply to 2.1% from 1.9% reported in December 2021."

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