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Costs remain high amidst dormant sales, profits: IIM-A business expectation survey

The latest round of Business Inflation Expectations Survey (BIES) for April 2019, released by the Indian Institute of Management-Ahmedabad (IIM-A), based on the responses of over 1600 companies, has revealed that around 50% of the firms in April 2019 reported increase in costs has been more than 3% (sharply down from 57% reported in March 2019) during the last one year, while the proportion of firms perceiving significant cost increase (more than 6%) in April 2019 has also come down sharply to 25% as compared to 32% in March 2019.
The survey further finds that in April 2019, nearly three fifths of the firms in the sample reported that sales are ‘somewhat or much less than normal’, with this proportion remaining similar during the January-April 2019 period. Further, the proportion of firms in the sample reporting ‘normal or greater than normal’ profit margins has marginally improved to 36% in April 2019 from 33% in March 2019, though overall, the profit margin scenario has remained unchanged in April 2019.
An IIM-A note on the survey says, “One year ahead business inflation expectation has marginally declined to 3.48% in April 2019 from 3.68% reported in March 2019.” It adds, “Uncertainty of business inflation expectation in April 2019 has also declined marginally. However, it has remained elevated at 2.26% (2.34% observed in March 2019).”
The note further says, “Respondents were also asked to project one year ahead CPI headline inflation through an additional question using a probability distribution. Survey results indicate that businesses in April 2019 expect one year ahead CPI headline inflation to be 3.85%, sharply up from 3.30% projected in February 2019, with a relatively low standard deviation of around 1.00%.”

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