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Even as Covid-19 restrictions are being eased to trigger a post-lockdown economic revival in the country, businesses will continue to face deteriorated profit margins amidst escalation in costs, a latest Business Inflation Expectations Survey (BIES) by IIM-Ahmedabad revealed.
During May 2021, more companies have reported pressure on profit margins than in April 2021. As per the Survey, “Over 60% of the firms in the sample in May 2021 report “much less than normal” profit – up from 55% reported in April 2021.”
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The reason for this was increased costs. The survey for May 2021 revealed that majority of the businesses and companies perceived costs going up, to the extent of 10 per cent.
The survey highlighted that there was marginal improvement in sales expectations observed in May 2021. But that was offset by increase in costs. “As a result, expectations of better profit margins have deteriorated.”
Decline in sales
Over 52 per cent of the firms reported that sales were “much less than normal” during May 2021. This was only a marginal improvement as compared to the sentiment reported in April 2021 with 55.5 per cent firms reporting the same.
This means that the after-effect of the second Covid-19 wave during April-May was still pervasive on sales expectations.
The BIES is a monthly survey released by the Indian Institute of Management - Ahmedabad (IIM-A) based on the responses from around 1300 companies. The survey asks questions about year-ahead cost expectations and the factors influencing price changes, such as profit, sales levels, etc. to the businesses - the price setters - rather than to consumers or households. This is to understand their expectations of the price level changes. BIES was introduced at IIMA from May 2017 and ‘BIES - May 2021’ is the 49th round of the survey.
The survey also assessed, from the respondents, the one-year-ahead business inflation expectations during May 2021, which has gone up by 23 basis points to 5.43 per cent in May 2021 from 5.20 per cent reported in April 2021. This is estimated from the mean of individual probability distribution of unit cost increase.
Majority or over 75 per cent of the firms in May 2021 find that the current cost increase is “3.1 per cent and above”. In March 2021, only 61 per cent of the firms reported so.
Only 8.9 per cent of the firms found that their current costs per unit has gone down by one per cent. And about 7.2 per cent have found that their current costs have remained unchanged.
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