Business Confidence deteriorated in third quarter of FY 2013

06 January, 2013

Reflecting a continuing deterioration in the macro economic scenario in the country, the CII Business Confidence Index dropped below 50-point mark during the third quarter of the current fiscal.

THE INDEX stood at 49.9 during Q3 of 2012 which is 1.4 points lower than 51.3 evidenced during Q2 of 2012 and much below 55.0 recorded in the first quarter of the year.

Commenting on the deteriorating value of the index, Chandrajit Banerjee, Director General Confederation of Indian Industry (CII), said, “The fall of the index below 50 points, which is an indication of weak business sentiments, is a matter of concern, requiring concerted policy intervention. While reform measures undertaken by the government in the recent months will surely start yielding results, it is important that the momentum on reforms is not lost.”
In the 81st Business Outlook Survey published by apex industry body CII, majority of respondents rated domestic economic developments, high interest rates, infrastructure bottlenecks and institutional issues among the key concerns.

Encouragingly, respondents did not consider the pace of reforms as a major problem now, buoyed by a slew of reform measures initiated by the government in recent months. In fact, most (38.9 per cent) of the respondents felt that reform measures announced by the government would have a positive impact on investments, even though the impact on output may take some time to take effect. Therefore, despite the reform measures, the majority of firms expect the GDP growth in the current fiscal to remain subdued in the range of 5.5-6.0 per cent.

The survey also indicates continuing elevated trend in inflation and fiscal deficit in the remaining period of the current fiscal. Majority of the respondents expect WPI-based inflation for the current fiscal to end up as high as 7.0-8.0 per cent, much higher than RBI’s comfort level. Regarding the fiscal deficit, the largest proportion of firms (54.8 per cent) expected it to lie in the range of 5.5-6.0 per cent of GDP, way higher than the revised government target of 5.3 per cent for 2012-13.

Most of the respondents in the CII survey did not see any change in their value of production and employment in the third-quarter of 2012-13, even though they did see overall sales and new orders to pick up, which could mainly be linked to the rise in demand owing to the festival season in the quarter under consideration.
Indicating that firms are now using the existing capacity rigorously rather than going for expansion, the largest proportion (41.2 per cent) of the firms saw their capacity utilization in the range of 75-100 per cent in the third quarter, moving up from 50-75 per cent in the previous quarter.

Bulk of the respondents (51.5 per cent) in the survey saw the domestic investments of their firms to register either a decline or no change in the Oct-Dec 2012 quarter. This is a worrying sign, and underlines the need for pro-active measures to restart the investment cycle.