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Manufacturing firms’ optimism on demand conditions weakens in Q1: RBI Survey Report

06 Aug 2026 Evaluate

The Reserve Bank of India (RBI) in its latest ‘Industrial Outlook Survey of the Manufacturing Sector’ report has stated that manufacturing firms turned less optimistic about demand conditions during the first quarter of FY27 (Q1:2026?27), with sentiments on production, order books, capacity utilisation and exports weakening amid the ongoing conflict in West Asia. During Q1:2026-27, firms reported intensified cost pressures, particularly on raw materials, alongside some increase in selling prices, while profit margins came under significant strain, reflecting limited pass?through of costs.

The survey report noted that the Business Assessment Index (BAI) dropped sharply to 100.4 in Q1:2026 27, from 108.8 in Q4:2025 26, marking the lowest level in the post Covid-19 period, even as it stayed within expansionary territory. Further, manufacturers outlook for Q2:2026-27 remains positive, albeit with some moderation, reflecting a cautious outlook on production, order books, capacity utilisation and exports. 

In Q2:2026-27, cost pressures are anticipated to remain elevated, with only partial pass through, keeping profit margins under strain. As per the survey report, business expectations index moderated in Q2:2026-27, reflecting guarded sentiment among manufacturers. Going ahead, demand conditions are expected to improve during H2:2026-27 from Q2, while responding firms expect the input cost pressures to continue.


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