RBI: Manufacturing Demand to Surge in Q3FY27 Amid Cost Pressures
The RBI Industrial Outlook Survey predicts rising demand and production for India's manufacturing sector in Q3FY27, despite persistent raw material costs.
India's manufacturing sector is poised for a significant boost in demand during the third quarter of fiscal year 2027, according to the latest findings from the Reserve Bank of India (RBI). While the outlook for growth appears bright, manufacturers are bracing for a continued struggle against rising input costs.
The RBI's 115th round of the quarterly Industrial Outlook Survey (IOS) reveals a landscape of optimism tempered by economic friction. While the sector saw a notable improvement in demand during Q2FY27—driven by robust production, expanding order books, and higher capacity utilisation—the shadow of expensive raw materials continues to loom large.
Rising Business Confidence and Demand
The survey, which gathered insights from 1,224 manufacturing companies between July and September 2026, highlights a strengthening trend in the industrial landscape. A key indicator of this momentum is the Business Assessment Index (BAI), which climbed to 104.4 in Q2FY27, up from 100.4 in the previous quarter.
Looking toward Q3FY27, the sentiment among manufacturing firms remains decidedly positive. Companies are projecting improvements across several critical metrics, including:
- Production Volumes: Expected to rise as demand picks up.
- Order Books: Anticipated to expand, providing clearer visibility for future operations.
- Capacity Utilisation: Factories are expected to run at higher levels to meet market needs.
- Exports: A positive outlook for shipping goods to international markets.
This optimism is further supported by the Business Expectations Index (BEI), a composite indicator published by the central bank that reflects the overall confidence levels of manufacturing leaders.
The Input Cost Conundrum
Despite the enthusiasm regarding sales and production, the survey warns of a persistent challenge: the cost of doing business. Raw material price pressures have remained elevated, creating a squeeze on manufacturers' margins.
The RBI notes that these cost pressures are not expected to subside in the near term. Consequently, firms are likely to face a difficult balancing act regarding their profit margins and selling prices. The survey suggests that to protect their bottom lines, manufacturers will likely implement a "pass-through" mechanism, where the increased costs of inputs are reflected in higher prices for the end consumer.
Long-term Outlook: Q4FY27 and Beyond
The positive momentum is not expected to be a short-lived phenomenon. The survey indicates that for Q4FY27 and even the beginning of Q1FY28, manufacturing firms expect healthy demand conditions to persist.
While the long-term trajectory for production and capacity utilisation looks healthy, the central bank's report underscores a recurring theme for the Indian industrial sector: the ongoing tension between growing market demand and the volatility of input costs. As firms prepare for the upcoming quarters, the ability to manage these costs while maintaining competitive selling prices will be the defining factor for profitability.