New Delhi: The CII Business Confidence Index (CII-BCI) for July-September 2012 fell by 3.7 points to 51.3, after rising to 55.0 in April-June 2012 from 52.9 in the previous quarter. “The falling index value is reflective of the low business sentiments that has been prevailing for the last few quarters”, said Mr.Chandrajit Banerjee, Director General, Confederation of Indian Industry.
The 80th Business Outlook Survey reveals that Stagnancy in reforms is the top concern of most firms, followed by Slackening consumer demand and High interest rates. “CII has been recommending implementation of reforms in the areas of indirect taxation, land acquisition, fast clearances of pending infrastructure projects and fiscal consolidation in order to improve business confidence and revive the growth outlook for the economy. The Finance Minister’s comments on these in the last week is most encouraging in this context. Given that slackening demand is now a key concern, the RBI should not have any reservations about reducing interest rates,” said Mr. Banerjee.
The survey reveals that majority of the respondents witnessed stagnancy in their overall sales, new orders, value of production, inventory levels and employment in the first-quarter of 2012-13.
Rising input costs continues to be a major worry for firms. Majority of the firms recorded an increase in raw material costs, electricity & fuel cost and cost of wages & salaries during April-June 2012 compared to the previous quarter. Expectations for the quarter ending September 2012 show that a majority of firms still expect these costs to increase though the proportion of respondents expecting an increase is lower than in the first quarter. Almost all firms reported either an increase or no change in the cost of credit and a majority continue to expect no change in the second quarter.
In a worrying trend, an overwhelming majority of respondents (86.3%) saw their availability of credit decline or remain unchanged in the period April-June 2012 mainly due to high interest rates prevailing in the economy. Expectations for the second-quarter 2012-13 too reveal almost similar trend, with bulk of the respondent companies (83.8%) expecting the availability of credit to remain stagnant or post a decline, in contrast to minority (16.2%) expecting an increase in credit availability.
Reflecting the grim domestic policy scenario, investment sentiments have weakened considerably. However, on a positive note, the survey showed that 56.1% of the respondents expect domestic investments of their companies to rise in the second-quarter of 2012-13 compared to the first quarter, while 39.5% expect it to show a decline or not change. In contrast, most of the respondents (42.6%) expect international investments to show a decline or no change in the second-quarter of 2012-13, while 34.7% of respondents expect it to record any increase. Further, the survey showed that an overwhelming (88.9%) of the respondents believed that infrastructural bottlenecks and lack of policy reforms were responsible for holding back domestic investments. The survey also showed that in the first-quarter of 2012-13, majority of respondent companies (42.8%) have had capacity utilization between 75-100%. In a sign of improving capacity utilization, a higher percentage of 57.2% expect it to remain above 75% in the second-quarter of the current fiscal.
CII’s 80th Business Outlook Survey is based on a large sample covering all industry sectors, including small, medium and large enterprises from different regions. The survey revealed that most respondents (45.6%) expect India’s GDP growth for 2012-13 to lie in the range of 6.0-6.5%, while 24.1% respondents even expect it to slip below 6.0%. Only 30.3% of respondents expect it to be higher than 6.5%. WPI-based inflation on the other hand is expected to remain elevated, with 33.3% of respondents expecting it to lie in a range of 7.0-8.0% in the current year while 28.8% feel that inflation will lie in the range of 8.0-9.0% and 28.2% expect it to jump to above 9.0% in 2012-13.