Firms Report Higher Costs, Weak Demand Conditions Persist: IIM-A Survey
According to the latest round of the Business Inflation Expectations Survey (BIES) conducted by the Indian Institute of Management-Ahmedabad (IIM-A), businesses in India are facing increased cost pressures while demand conditions remain weak. This survey, which reflects the sentiments of firms for December 2025, highlights significant trends in costs, sales, profit margins, and inflation expectations.
Cost Pressures on the Rise
In December 2025, 28% of firms reported that their current costs per unit had increased “somewhat,” with a rise between 1.1% to 3% compared to the same time last year. This marks an increase from 25% in November 2025. The survey indicates a moderate uptick in cost pressures, suggesting a gradual firming in input prices across various sectors.
Weak Sales Conditions Persist
Sales conditions have remained weak for the second consecutive month. Approximately 56% of firms reported their sales levels as “much less than normal” or “somewhat less than normal,” a figure that has not changed since November. This indicates that demand conditions have not improved, with more than half of the respondents continuing to report below-normal sales compared to the average levels from the same period in the previous three years, excluding the Covid-19 phase.
Profit Margins Under Strain
Profit margins are also feeling the pressure. Around 68% of firms indicated that their profit margins were “somewhat less than normal” or lower in December, which is consistent with the findings from November. The high percentage of firms reporting compressed margins underscores the combined impact of moderate cost pressures and subdued sales on overall business profitability.
Inflation Expectations on the Rise
In the context of these challenges, one-year ahead business inflation expectations have risen for the third consecutive month. The mean expected unit cost increase climbed to 4.36% in December 2025, up from 4.16% in November and 3.97% in October. Despite this recent uptick, the average inflation expectation over the past 12 months has remained relatively stable at around 4.10%.
Declining Uncertainty in Business Inflation Expectations
Interestingly, uncertainty surrounding business inflation expectations has notably declined. The measure of uncertainty, calculated based on the square root of the average variance of individual probability distributions of unit cost increases, fell to 1.84% in December from 2.10% in November. This indicates a growing confidence among firms in assessing future cost movements.
Consumer Price Index (CPI) Projections
Furthermore, businesses projected one-year ahead Consumer Price Index (CPI) headline inflation at 3.98% in December 2025, which is an increase of 15 basis points from 3.83% reported in October. The uncertainty associated with CPI inflation expectations remained low at around 0.87%, suggesting relatively stable perceptions of inflation at the headline level.
Conclusion
The findings from the IIM-A survey paint a complex picture of the current economic landscape for firms in India. While cost pressures are on the rise, demand remains weak, leading to strained profit margins. The increase in inflation expectations, coupled with declining uncertainty, suggests that firms are navigating a challenging environment as they plan for the future. The data highlights the need for businesses to adapt to these conditions to ensure sustainability and growth.
Note: The information presented in this article is based on the Business Inflation Expectations Survey conducted by IIM-A and reflects the sentiments of firms as of December 2025.
