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IIM-A survey 'contradicts' GoI revival claim: Industry costs high, sales, profits low

By Our Representative 

The Indian Institute of Management-Ahmedabad's Business Inflation Expectations Survey (BIES), seeking to provide ways to examine the amount of slack in the economy by polling a panel of business leaders of around 1,100 companies, has said that the cost perceptions data is “yet to indicate any significant reduction of cost pressures.”
Pointing that while there is “further decline in the number of firms perceiving very high cost increase (over 10%)”, nevertheless, around 27% of the firms “are still reporting more than 10% cost increase”, results of the survey state, adding, “Also, the number of firms perceiving significant cost increase (over 6%) has remained high around 57% during last two rounds of the survey.”
Claiming to be a unique survey, as it goes straight to businesses -- the price setters -- rather than to consumers or households, to understand their expectations of the price level changes, providing an indirect assessment of overall demand condition of the economy, a BIES report says, “Sales expectations in December 2021 have sharply dropped.”
Pointing out that this “possibly reflecting negative effects of Covid/Omicron outbreak”, the report says, “Percentage of firms reporting ‘much less than normal’ sales has shot up to 36% from 29% reported in November 2021”, adding, “Over 61% of the firms report that sales are ‘much or somewhat less than normal’, as compared to 57% reported in November 2021.”
“Normal means as compared to the average level obtained in the preceding three years, excluding the Covid-19 period”, the report explains.
The report further reveals, “The firms in December 2021 report muted profit expectations. Around 32% of the firms in the sample report ‘somewhat less than normal’ profit – noticeably up from 26% reported in November 2021.”
The bleak outlook for costs, sales and profits, significantly, comes amidst the Government of India (GoI) claiming a sharp revival of the economy to the pre-pandemic level. The Economic Survey 2021-2022, compiled by Principal Economic Adviser Sanjeev Sanyal and his team of advisors, claims that "there has been a revival in economic activities to pre-pandemic levels."
Stating that the results of this survey are useful in understanding the inflation expectations of businesses and complement other macro data required for policy making, the report says, “One year ahead business inflation expectations in December 2021, as estimated from the mean of individual probability distribution of unit cost increase, have increased by 15 basis points to 5.45% from 5.30% reported in November 2021.”
At the same time, it adds, “The uncertainty of business inflation expectations in December 2021, as captured by the square root of the average variance of the individual probability distribution of unit cost increase, has declined sharply to 1.9% from 2.1% reported in November 2021.”
According to the report, “The businesses in December 2021 expect one year ahead CPI headline inflation to be 4.96%, marginally down from 5.06% reported in October 2021, with a relatively low standard deviation of 0.93%. It has remained around 5% since June 2021.”

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