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Taking a Tumble

Business confidence falls for the fifth straight quarter as corporate leaders expect economic recovery to take longer, finds the latest Business Today-C fore Business Confidence Survey.
By Manu Kaushik | Print Edition: May 8, 2016

The recovery of the Indian economy (among other things) hinges on two key factors: growth in investments - both public and private sector - and an uptick in consumer demand. While the government is making sure that one side of the investment wheel keeps moving, the other wheel, which is private investments, is still stuck. Underutilised capacity, weak demand, a cautious banking sector, and over-leveraged books of large corporations are affecting fresh investments by the private sector. The situation on consumer demand is not hunky-dory either. Two years of weak monsoon have crippled rural demand.

The latest Business Today-C fore Business Confidence Survey seems to echo these macro-economic concerns. In the January-March period, the index registered a straight fifth quarter fall. The survey shows that, on a scale of 100, confidence level fell to 49.6 in the last quarter of 2015/16, down from 53.2 in the October-December quarter and 55.4 in the quarter before that.

This is the lowest the index has fallen in the past two years. It had fallen to 48.6 in the October-December 2013 quarter. The falling index is a grim reminder of low confidence levels when UPA-II was in power. Market research agency C fore quizzed 500 CEOs and chief financial officers across 12 cities for the survey.


The survey, which echoes the mood of corporate leaders, shows a dip across several components. Take the services sector, for example. The confidence level has dipped from 54.4 in the July-September 2015 period to 48.9 in the current survey. The decline is almost similar in the heavy engineering and light industry sectors.

In addition, the confidence level has dipped across businesses of all sizes - big, medium, small and micro. The fall was highest among medium-size businesses where the index plunged from 54.6 in the October-December period to 49.6 in the latest survey.

As per the survey, more respondents are expecting the situation to get worse in areas like availability of finance, hiring and profit pickup. In the case of availability of finance, only 14 per cent of the respondents hope things will improve on this front. This number was lower than 21 per cent in the previous survey.

Hiring may remain subdued going forward. As per the latest survey, 35 per cent respondents expect hiring activities to get worse in the April-June 2016 period. The corresponding figure in the previous survey was 27 per cent.

Profit pickup is another parameter that has taken a hit. As compared to only 27 per cent respondents in the previous survey, 42 per cent of the respondents expect that profits are not likely to improve in this quarter.

56 per cent of the respondents said that the January-March quarter was worse than the October-December quarter, when it came to demand conditions. D.K. Joshi, Chief Economist at ratings agency CRISIL, says that the rural sector is hurting overall demand. "Normal monsoon is a critical factor this year to sustain growth," he adds.


The survey highlights that 52 per cent of the respondents are confident enough to make capital expenditure to cater to future demand, following recent interest rate cut by the Reserve Bank of India (RBI). In the first week of April, RBI slashed repo rate by 25 basis points to 6.5 per cent, besides announcing measures to improve liquidity in the market. The Central bank has also increased the pressure on banks to pass on the rate cuts to end borrowers.

In May 2014, when Prime Minister Narendra Modi took charge, the business sentiment among corporate India reached stratospheric levels. However, the expectations from the government that promised "governance and development" started to taper off soon. The business confidence is sinking on the back of the government's ineffective efforts to bring foreign investments into India.

Recently, the Finance Minister, Arun Jaitley, made a four-day visit Australia to attract investors for the ambitious 'Make in India' programme. "For two consecutive years, we are the fastest growing economy in the world. When we measure ourselves by our own standards, we believe that 7.5 per cent does not reflect our true potential?manufacturing must occupy a space," Jaitley said.


As a supplement to the BCI survey, we have carried out an assessment of other indicators of economic growth, which include macro-economic conditions, and consumer and investment data. The survey suggests that more respondents (21 per cent) are hopeful about sales picking up in the April-June quarter, as compared to the January-March period (12 per cent).

However, economic revival still looks like a distant dream for most corporate leaders. A vast majority of respondents - 76 per cent - expect the economic recovery to take more than 18 months, whereas 17 per cent expect the same in about a year, and only 7 per cent respondents expect recovery in six months. "The banking sector is cleaning up; excess (production) capacity still plagues the economy, and export opportunities will be low. We are likely to see improvement by the end of this fiscal," says an analyst.

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