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India Inc's business confidence improves in Jan-March FY15: CII

Tags: CII, Business Confidence Index, macro-economic, Make in India, RBI, GDP

April 01, 2015 | COMMENTS ( 0 )

India Inc\'s business confidence improves in Jan-March FY15: CII

After experiencing some moderation in business confidence during Oct-Dec FY15, the CII 90th Business Confidence Index (BCI) has shown signs of improvement during Jan-March FY15.

This is evident from the fact that the index has moved up to 56.4 during Jan-March FY15 from a level of 56.2 in the previous quarter. The improvement in confidence level also assumes significance as the BCI was much lower at 49.9 in the same quarter last year. It should be noted that the index value of 50 is the dividing line between positive and weak confidence index.

Commenting on the results, Chandrajit Banerjee, Director General, CII, said, "The survey reinforces  the CII view that business sentiment has been turning positive on the back of pro-reforms approach of the government, a stable macro-economic environment and a focus on pertinent issues such as the 'Make in India' campaign launched by the government."

The 90th Business Outlook Survey is based on responses received from over 150 industry members. Majority of respondents (48 per cent) belonged to large-scale sector, while medium and small scale companies comprised of 17 per cent and 35 per cent respectively. Further, the largest 50 per cent of respondents were from services, followed by 44 per cent from manufacturing and 6 per cent from primary sector.

A majority (55 per cent) of the respondents expect GDP growth to settle in the range of 6.5-7.5 per cent in FY15. This is directly in line with 7.4 per cent GDP growth in FY15 as per the revised estimates of CSO. In a welcome sign, while GDP is expected to register high growth rate, inflationary expectations have moderated. A considerable proportion (72 per cent) of respondents believe that wholesale inflation will remain below 6.0 per cent level in FY15, which should provide legroom to RBI to soften the monetary policy in favour of growth.

In further indication of macro-economic strengthening, around 72 per cent of respondents expected current account deficit (CAD) to be less than 2.5 per cent (of GDP) in FY15. India's CAD stood at 1.8 per cent in first three quarters of FY15, after it narrowed sharply to 1.7 per cent in FY14 from 4.7 per cent in FY13.

The expectation of higher economic growth in the current fiscal is rooted in optimism about the overall demand situation. Around 58 per cent of respondents expected sales and new orders to increase during Jan-Mar FY15, up from 53 per cent in the previous quarter. Similarly, 63 per cent respondents expected new orders to improve during Jan-March FY15, higher than 46 per cent in the earlier quarter. External demand also shows improvement as 45.9 per cent respondents expected their export orders to increase in Jan-Mar FY15, higher than 43.0 per cent during the previous quarter.

The increased expectation of demand has largely been managed by higher utilization of the existing capacity. More than half (57 per cent) of respondents expected capacity utilization to be above 75 per cent level during Jan-Mar FY15, up from 41 per cent during Oct-Dec FY15. However, more than 50 per cent of respondents did not anticipate a change in their domestic investment plans in Jan-Mar FY15.

Subdued investment plans, despite an expected surge in sales, can possibly be linked to the unutilized capacity available in the economy currently. For investment demand to pick up substantially, the monetary stance by the RBI would also play a crucial role.

Expectation of recovery in sales, coupled with sharp decline in input costs, has led to relatively higher proportion (47.6 per cent) of respondents expecting an increase in profit-after-tax during Jan-Mar FY15, as compared to 33.6 per cent in the previous quarter.

Citing the downside risk to growth, the respondents viewed that the moderation in domestic growth, a slow revival of the global economy and high borrowing costs have emerged as the top three concerns affecting the economy. All policy options must be explored to tackle these risk factors.

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