Indicating a sharp improvement in investors' sentiments amidst heightened expectations that the new government means business along with some improvement in basic macro indicators, the CII Business Confidence Index (CII-BCI) for April-June 2014 quarter has moved up to 53.7 from 49.9 in the previous quarter. The number 50 is the dividing line on the index between positive and weak business confidence.
Commenting on the jump in the index, CII Director General, Chandrajit Banerjee said,"The expectation that the stable government at the Center would bring growth back to India, along with a mild upturn in some economic indicators in form of recovery in exports, decline in twin deficits, buoyant foreign capital inflows, strengthening rupee and moderating inflation has provided a big boost to business sentiments in the country. We expect the index to gather momentum in the coming days, riding on improved sentiments and business confidence."
The 87th Business Outlook Survey is based on the responses from over 150 industry members. Majority of the respondents (50 per cent) belong to large-scale sector, while medium scale companies comprise another 13 per cent. Around 31 per cent and 7 per cent respectively are from small-scale and micro firms. Further, 54 per cent of the respondents were from the manufacturing sector while 45 per cent were from services.
Majority of the respondents in the 87th CII's Business Outlook Survey are optimistic about GDP growth, inflation, twin deficits, and stability of Rupee against US dollar in 2014-15. While GDP growth is expected to pick up from 4.7 in FY14 to 5.5-6% in FY15, WPI Inflation is expected to moderate from an average of 6 per cent to 5.5-6% during this period. The key to normalization of economy lies in restoring the high growth trajectory coupled with low inflation, stated, Banerjee.
Expectation of higher economic growth in the current year is rooted in optimism about the overall demand situation. As high as 56 per cent of the respondents expect their sales and new order to increase in the first quarter of 2014-15, which is much higher than the previous quarter wherein only around 35 per cent respondents expected a rise in sales. Similarly, majority of the respondents expect their investment, domestic as well as international, to go up during the
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current quarter.
Further, 37 per cent of the respondents expect their export orders to increase in Apr-Jun 2014 quarter, much higher than 23 per cent respondents in the previous quarter. Correspondingly, the percentage of respondents expecting their exports to increase has also gone up from 27 per cent in Jan-Mar 2014 quarter to 43 per cent in Apr-Jun quarter.
The fact that the demand situation is on the road to improvement is also evident from the fact that the businesses, besides increasing new investment, have started experiencing the rise in capacity utilization. According to the survey, 44 per cent of the respondent firms expect the capacity utilization levels to exceed 75 per cent in Q1 FY15, up from 34 per cent respondents in the previous quarter. This augurs well for the turnaround of the economy.
Expectation of recovery in sales and a rise in new orders coupled with near stagnation in inputs cost has led to rise in percentage of respondents expecting an increase in profits in Apr-Jun 2014 quarter to 34 per cent as against from 21 per cent in the last quarter. Majority of the respondents (around 47%), however, did not expect any change in net profit in the current quarter which points to continuation of policy efforts in the direction of further improvement in the business condition in the country.
Domestic economic uncertainty, low GDP growth and high inflation are cited to be the top most concerns of the respondents, highlighting the need for stepping up efforts in the direction of improving business sentiments and removing supply bottlenecks.
"We are pleased to see that the new government is already working in this direction and it is only a matter of time when fundamentals of the economy will start falling in place," said Banerjee.
