India Inc's business confidence highest in decade: FICCI Survey

Improvement in overall conditions as well as expectations helped, the survey said

FICCI's Overall Business Confidence Index has witnessed a decadal high of74.2 in the current round on account of improvement in present conditions as well as expectations, the industry body said on Sunday.

The Index had stood at70.9 in the previous survey and 59 a year ago, noted the survey. It revealed recovery of demand conditions, improved capacity utilisation and a promising outlook on various operational parameters.

With regard to the constraining factors for business, the demand situation has improved on back of the release of the pent-up demand build up during the lockdown.

However, rising raw material costs is emerging as a bothersome factor for members of India Inc. The rise in fuel and other commodity prices is beginning to exert pressure on the input costs of companies, FICCI stated on the survey.

Companies participating in the survey cited high input costs including man power costs, weak demand conditions and lack of availability of affordable credit as their top-most concerns for the year 2021.

A near-unanimity was observed as far as input costs were concerned. This along with high interest costs on loans, higher inward and outward transport and logistics costs, greater compliance burden on the back of frequently changing statutory compliances and increased manpower costs are further pushing the cost of doing business in India, FICCI stated.

This does not bode well in the current environment wherein a shift in global supply chains is being witnessed, it added.

"In this context, respondents also added that leaving trade policy issues unaddressed will create an even bigger challenge with China as well as other countries including Vietnam regaining market share to become global suppliers.

"Lack of adequate export incentives is also making it difficult for Indian entrepreneurs to compete globally," the Federation of Indian Chambers of Commerce and Industry (FICCI) stated.

Improvement in conditions as well as expectations have pulled the Overall Business Confidence Index value to a decadal high in the current survey, FICCI said.

The Union Budget 2021-22 has been forward looking, said FICCI.

This, together with measures announced as part of the Atmanirbhar Bharat package, has infused optimism among industry members and the same is corroborated in the improved outlook for various operational parameters, it added.

Improved economic conditions and greater pricing power are likely to drive profits of corporate India over the next two quarters. The percentage of participants citing higher profits over next six months increased to 36 per cent in the latest survey from 33 per cent respondents stating likewise in the previous round, the survey showed.

Outlook on employment and exports also reported a discernible improvement, as about 35 per cent respondents were optimistic about better hiring prospects over the next two quarters, up from 22 per cent stating the same in the previous round.

Export prospects were reported to be better in the current round with 41 per cent respondents, indicating higher outbounds shipments. The corresponding number in the previous round was 27 per cent.

Furthermore, the proportion of respondents citing 'higher to much higher' investments in the coming six months witnessed an upswing in the current survey when compared to the previous round.

With demand situation slowly turning positive, an improvement was also noticed in capacity utilisation rates. In the current survey, around 77 per cent participating companies reported capacity utilisation of more than 50 per cent, compared with 68 per cent stating likewise in the previous round.

Companies expect higher export orders in the coming months on the back of global economic recovery led by large scale vaccination drive against COVID-19 around the world.

Respondents emphasised that given the current global sentiment, India could easily become the preferred sourcing destination for western countries if adequate and timely steps taken to support this change.

In addition, companies stressed the need for reducing customs duty on imports to curtail rising domestic prices of raw materials. Commodity prices have risen drastically in the past few weeks and this is impacting profitability and viability of business.

Participants highlighted that restrictions on imports must be removed at least until India achieves some level of self reliance in production of industrial inputs such as components and parts.

The current survey drew responses from a wide array of sectors and was conducted during January and February this year. It gauges expectations for the period January to June 2021.