BCI Survey The year 2024 ended on a sombre note for India Inc. amidst a sharper-than-anticipated slowdown in economic growth in the second quarter of the fiscal, stubbornly high inflation, and external uncertainties, especially a lack of clarity on US President-Elect Donald Trump’s tariff policies. This was reflected in the BT-C Fore Business Confidence Survey of 500 chief executive officers (CEOs) and chief financial officers (CFOs) for the October to December 2024 quarter, which revealed that the business confidence index (BCI) dipped to 53.8 from a nine-year high of 56.7 in the previous quarter. The BCI for the October-December 2024 quarter was the lowest in this calendar year and was in fact the weakest since the April-June 2023 quarter when the reading came in at 52.7. Business confidence dipped across sectors and sizes of companies in the October-December 2024 quarter as against the previous quarter. Amongst sectors, sentiment in the services industry was most muted, with a BCI reading of 51.3, down from 53.9 in the previous quarter. Business confidence in the light industry, comprising food products, beverages, textiles, leather and wood products, and furniture, was the highest at 55.5 but still slipped from 58.5 in the second quarter. Similarly, sentiment also dipped across industry sizes. While big and mid-sized businesses still remained the most confident with a BCI reading of 57.8 and 56.9, respectively, for the October-December 2024 quarter, micro and small businesses turned more cautious with a reading of 49.8 and 50.6, respectively. The dip in business sentiment comes right after the government released gross domestic product (GDP) estimates for the second quarter of the fiscal, which revealed that despite the festive season and good rains, economic growth slowed to a seven-quarter low of 5.4%. Concerns have also emanated over moderating urban demand amidst stubbornly high inflation and low pay hikes as well as the slow pick-up in private investment. The government’s First Advance Estimates for GDP growth pegged it at a four-year low of 6.4%. Experts expect the economy to pick up momentum in the second half of the fiscal but estimate growth to remain below 7% in FY26 as well. Devendra Kumar Pant, Chief Economist and Head (Public Finance) at India Ratings & Research, says the agency expects the economy to grow by 6.6% in FY26. Retail inflation will start easing from the fourth quarter of FY25, he says, which will in turn have a positive impact on consumption growth. The agency has pegged average retail inflation at 4.9% for FY25. A one percentage point decline in inflation can lead to a one percentage point increase in real wages. This in turn can lead to a 110 basis point increase in private final consumption expenditure, Pant explains. Recent high-frequency indicators show a mixed picture for now. Factory output as measured by the index of industrial production touched a six month high of 5.2% in November. But net GST collections grew by just 3.3% in December on a year-on-year basis to Rs 1.54 lakh crore. According to Pant, companies in the infrastructure space will continue to do well while urban-focussed FMCG companies will be impacted due to weaker urban demand. Similarly, firms catering to the lower and middle income groups will be affected by weaker demand, but companies producing high-end goods and services will continue to do well. However, India Inc. remains cautious in its expectations from the fourth quarter. With Trump set to assume office on January 20, businesses remain watchful of how his policies will play out. To a specific question on whether they are concerned about the potential impact of tariff hikes by the Trump administration on the Indian economy, 68% of the respondents surveyed replied in the affirmative. For the January-March 2025 quarter, companies gave a rating of 6.2 out of 10 for the overall economic situation and of 6.3 on demand conditions. The outlook is bleaker on hiring with a 4.5 rating, and the expectations on profits also turned weak with a score of 5.5 out of 10. Weak domestic demand conditions continue to be a concern, and worries about the economy abound. As much as 43% of the respondents said they are apprehensive about a significant slowdown in India’s economic growth in FY25. Rahul Ahluwalia, Co-founder of the think tank Foundation for Economic Development, notes that India’s export performance in the past 12 years has been quite poor, and private investments have also not picked up despite several government measures. “In a low per capita income country like India, domestic consumption never fully drives demand, and export performance remains crucial. India has been unable to capture export opportunities. Barring a few companies like Apple, most large global players have not chosen to make India their export base,” he says, adding that what is needed now are strong structural reforms in areas like taxation and trade. “While the government has taken several measures for this, much more is required to be done,” he underlines. Not surprisingly then, businesses are pinning their hopes on the Union Budget 2025-26 to give them some relief. For 55% of the respondents, tax cuts, including reductions in the rates of goods and services tax (GST), are the top expectation from the Budget, while 19% hope for measures to promote domestic manufacturing. For 16% of the respondents, the top expectation is measures to prioritise economic growth and control inflation. While policymakers in New Delhi and analysts continue to hope for a rate cut by the RBI in the February meeting of the Monetary Policy Committee, businesses are more circumspect, and 46% believe that this will only happen in the April-June 2025 quarter and 22% expect it in the second half of 2025. For now, the outlook for 2025 still remains optimistic, and growth could edge back to about 7% in FY26. But the possibility of fresh uncertainties cannot be dismissed. @surabhi_prasad
