88th Business Outlook Survey indicates that 6% growth is within reach this year
Indicating a sharp improvement for the second consecutive quarter, the CII Business Confidence Index (CII-BCI) for July-Sept quarter FY15 has shot up to 57.4, up from 53.7 in April-June quarter and 49.9 in Jan-March quarter this year. During the same quarter last fiscal, the index had touched the all-time low value of 45.7.The number 50 is the dividing line on the index between positive and weak business confidence.
Commenting on the upward march in the value of index, Chandrajit Banerjee, Director General, CII, said "the determination shown by the new government at the Center to provide an impetus to growth along with reviving the 'feel good' factor has sent the business confidence index soaring for the second quarter in a row. In order to capitalize on the early signs of improving business sentiments, we must ensure that this momentum is maintained going forward."
The 88th Business Outlook Survey is based on responses from over 150 industry members. Majority of the respondents (44%) belong to large-scale sector, while medium scale companies comprise another 12%. Around 38% and 6% respectively are from the small-scale and micro firms. Further, 60% of the respondents are from manufacturing and 36% are from the services sector.
The highest percentage (41%) of respondents expected GDP in the current fiscal to expand by 5.0-5.5%, up from sub-5% growth witnessed in the last two years. In fact, 30% respondents expected GDP to grow in a range of 5.5-6.0% in FY15, which indicates that 6% growth is within reach this year. We have already started this financial year on an impressive note with the first quarter GDP recording a growth of 5.7%, up from 4.6% in the previous quarter.
WPI Inflation is expected to average 5.5-6.5% in FY15, which is slightly on a higher side considering the likelihood of a sub-normal monsoon this year. "The management of inflationary expectations through supply-side measures would hold the key for ensuring continued momentum of economic revival", suggested Chandrajit Banerjee.
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The expectation of higher economic growth in the current fiscal is rooted in optimism about the overall demand situation. A significant 77% of the respondents expected their sales to increase in the July-Sep quarter, much higher than 50% respondents in the previous quarter. Similarly, 49% of the respondents expected their export orders to increase in July-Sep quarter compared to 39% respondents in the previous quarter.
The revival in domestic and global demand has resulted in a majority (46%) of the surveyed businesses contemplating new investment in the July-Sep quarter, whereas only 10% expected contraction. This indicates that economic recovery is sustainable, provided we maintain the demand momentum, where the monetary stance by the Central Bank will play a crucial role.
The businesses, besides undertaking new investments, have started experiencing a rise in capacity utilization. Nearly half (49.5%) of the respondent firms expected their capacity utilization to exceed 75% in July-Sep quarter of FY15, up from 34% respondents in the previous quarter, which augurs well for the turnaround of the economy.
CII survey has observed a sharp decline in the percentage of respondents reporting increase in inputs costs related to raw materials, energy and employees in the Jul-Sep quarter as compared to the previous quarter, which is in line with the official data specifying the current moderation in inflation rate.
Expectation of recovery in sales, coupled with sharp decline in input costs, has led to a rise in percentage of respondents expecting an increase in profits after tax (PAT) in the July-Sept quarter to 40% as against 36% in the previous quarter. On the other hand, the percentage of respondents reporting a decline in PAT between the two periods declined from 30% to 20%.
A slow pick up in global demand, high inflation and rising borrowing costs are cited to be the top three concerns of the respondents. "While we can do little about addressing the global slowdown concern, all policy options must be explored to tackle the problem of inflation and high borrowing cost. At a time when economic recovery needs to be strengthened, the ideal policy instrument would be to manage inflation through supply-side measures, and make a direct intervention to reduce borrowing costs", added Chandrajit Banerjee.
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