Indian manufacturing market needs a more rapid increase in sales

The sales volumes of the average Indian companies are yet to be back on track with almost 56 per cent still reporting ‘much less than normal’ or ‘somewhat less than normal’ sales as of June. There is, however, a silver-lining in that percentage of those in the latter category are reporting a five per cent increase from May’s 12 to 17 per cent in June. Although, the overall profit margin expectations remained unchanged, nearly 66 per cent firms reported insignificant profits in June. These are the findings of the ‘Business Inflation Expectations Survey (BIES) - June 2023’ conducted by IIMA’s Misra Centre for Financial Markets and Economy. The survey covered around 1000 companies, mostly from the manufacturing sector. The figures have to be seen in the light of the recent challenges faced by the manufacturing sector vis-à-vis geopolitical uncertainty, supply chain disruptions, changing consumer preferences and regulatory scrutiny. There have been some positive factors, along the way, like rising global demand, ongoing technological advancements and pumping investments in automation and digitalization.

Interestingly, India’s manufacturing market is projected to grow by 8.36 per cent (2023-2028) resulting in a market volume of $365.20 billion in 2028. The sector contributes nearly 16-17 per cent of the GDP and employs almost 20 per cent of the country's workforce. It is pertinent to mention that the latest BIES gives directions on going about handling the slack. The respondents included business leaders, who were asked about their inflation expectations in the short and medium term and factors influencing price changes, such as profit and sales levels. If the findings are pointers, then the average inflation expectations of the firms remained within four per cent for two consecutive months and one year ahead of CPI inflation expectations declined further to 4.56 per cent. Actually, one year ahead business inflation expectations, as estimated from the mean of individual probability distribution of unit cost increase, increased marginally by 13 basis points to four per cent in June from the 3.87 per cent in May. The uncertainty of business inflation expectations in June (as captured by the square root of the average variance of the individual probability distribution of unit cost increase) has, more or less, remained unchanged at around two per cent.

Meanwhile, one major advantage of BIES is that one can get a probabilistic assessment of inflation expectations and thus get a measure of uncertainty. It also provides an indirect assessment of overall demand condition of the economy. The survey results are, therefore, useful in understanding inflation expectations of businesses and complement other macro data required for policy making. Quite significantly, the cost pressures during the period have also gone up, albeit marginally. The cost perceptions data indicates a slight increase of pressures. The percentage of firms perceiving ‘significant (over six per cent) cost’ increase, has marginally increased. Over 33 per cent of firms perceive that costs have gone up moderately, in the range of 3.1-6 per cent.