High cost increase, muted sales 'severely affecting' industry profits: IIM-A survey

By A Representative
The Indian Institute of Management-Ahmedabad's (IIM-A's) 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, has said that high cost increase along with muted sales has severely affected industry profit margins in India.
Pointing towards hardening of cost pressures and subdued sales expectations, the BIES report says, around 70% of the firms perceived significant (over 6%) cost increase, as against 62% reported a month earlier.

“Over 39% of the firms perceive that costs have increased very significantly (over 10%), as compared to 36% reported in the earlier round. For the first time, around 2/5th of the firms reported more than 10% cost increase”, the survey report states.
Pointing out that firms’ sales expectations, the report, based on a survey of about a thousand top business executives, says, the firms reporting ‘much less than normal’ sales was at 36-37%, adding, over 59% of the reported that sales were ‘much or somewhat less than normal.”
As for profits, says the survey report, 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”, over 52% of the firms in the sample reported ‘much less than normal’ profit – “only marginally down from 54% reported earlier”.

The report further says, one year ahead business inflation expectations, as estimated from the mean of individual probability distribution of unit cost increase, have further increased by 15 basis points to 6.09% from 5.94% reported a month earlier.
Noting that respondents were also asked to project one year ahead CPI headline inflation through an additional question using a probability distribution, the report adds, “The businesses expect one year ahead CPI headline inflation to be 5.74%, sharply up from 4.96% reported in December 2021.”

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