Indian industry remained upbeat about the business environment in the first quarter of FY2016-17, as borne out by a significant pick-up in the CII Business Confidence Index (BCI) for Apr-Jun 2016. The CII-BCI increased to the level of 57.2, up from the level of 54.1 recorded in the previous quarter. The index has been steadily climbing since the last three quarters.
Commenting on the decisive improvement in the BCI, Mr Chandrajit Banerjee, Director General, CII said that the ‘pick-up in business sentiment is indeed commendable and lends credence to the perception that the economy is on a firm footing. A rise in business expectations sends an early signal that industry is anticipating an upturn in demand propelled by factors such as implementation of the Seventh Pay Commission, progress of a favourable monsoon and pro-active reform agenda of the government’.
These findings are a part of CII’s 95th edition of quarterly Business Outlook Survey, which was based on more than 200 responses from large, medium, small and micro firms, covering all regions of the country.
The significant improvement in the index this quarter has been led by a sharp improvement in the Expectation Index, as compared to the Current Situation Index, as firms appeared particularly upbeat about activity in their sectors.
The increase in the business sentiment this quarter has been backed by strong expectation of economic growth for the current fiscal year, with more than 60% of the firms expecting real GDP growth to range between 7-8% in FY17. Also, business conditions are expected to improve as 61% of the firms expect an increase in sales in Apr-Jun 2016, as compared to only 42% who experienced the same in Jan-Mar 2016, while nearly two thirds of the firms (65%) anticipate an increase in new orders in Apr-Jun 2016, up from 40% who witnessed the same in the preceding quarter. Much of the recovery in business conditions is expected to be domestically driven as a majority of the firms (51.2%) expect to maintain status quo on their export orders in Apr-Jun 2016.
Profit expectations have also improved in the current quarter (Apr-Jun 2016) with close to half of the firms (48.7%) anticipating an increase in their after-tax profits in the said quarter. This is despite the fact that a large share of respondents (37%) had experienced a decline in after- tax profits in the previous quarter (Jan-Mar 2016).
A majority of the firms have placed their investment plans on hold in Apr-Jun 2016 quarter, notwithstanding the expectation of improvement in sales and new orders in the said period. Existing unutilized capacity and unforthcoming demand have prompted nearly half of the firms (49.7%) to maintain status quo on their domestic investment while the uncertainty in the global economic environment has forced larger share of firms (60.5%) to keep their international investment plans unchanged.
A large proportion of the firms (40%) feel that a turnaround in the global economy is required to jumpstart the private investment cycle. Nonetheless, a major share of the firms (43%) feel that high government spending was instrumental in bringing about the turnaround in the corporate sector earnings in Jan-Mar 2016 quarter. Firms, when asked to rank their concerns, rated low domestic demand, fragile global economic recovery and lack of political consensus on economic reforms as their top three concerns.