Business confidence reaches 2-year high in October-December

The latest CII Business Confidence Index (BCI) rose to 67.6 in the fiscal third quarter from 62.2 in the preceding quarter, even as much of the world braced for a slowdown in advanced economies.

At a time when global growth is slowing due to tight financial conditions and geopolitical tensions, 73% of the survey respondents said they expect only a moderate impact of the global slowdown on the Indian economy.

About 86% cited the government’s focus on infrastructure as the reason for their confidence, followed by higher tax collections and good consumption recovery.

A majority of respondents (70%) said the economy would expand in a range of 6.5% to 7.5% in FY23 (compared to 8.7% in the previous fiscal), in line with earlier advance estimates, which put it at 7%. However, growth is expected to come down further in FY24 on global headwinds.

The Reserve Bank of India has continuously increased interest rates from May 2022 to curb inflation.

Unsurprisingly, almost half of the respondents (47%) said they had already started feeling the impact of rate hikes on economic activity.

High interest rates have also impacted private investment levels.

Currently, most of the heavy lifting to support growth is being done by public capex, with private capex playing a supporting role.

Apart from the high cost of borrowing, the prevailing heightened uncertainty has deterred companies from going ahead with their investment plans.

Nevertheless, almost all respondents (90%) said that their company’s investment cycle would recover during the next financial year, with about 52% expecting a recovery during the first half of the next financial year and about 37% by the second half. Huh. This is further reinforced by the fact that half of the respondents said that their companies would have capacity utilization levels between 75-100% during the December quarter.

Besides reviving investment, another key area of ​​focus for policy makers has been to accelerate rural incomes, given the size of the rural economy.

The latter took a significant hit, especially after the second wave of the pandemic and the recent spike in inflation. A revival in rural demand is eagerly awaited, given its impact on the overall economy, and nearly 60% said rural consumption would improve in the next financial year.

With the resumption of business activity, expectations for the December quarter have improved, as a majority of respondents anticipate an increase in sales (60%) and the number of new orders (55%).

As a result, the profit outlook for the quarter strengthened as almost half of the respondents (47%) predicted an increase in profit margins despite indicating higher input costs.

Nonetheless, input price pressures, though still elevated, have eased over the previous fiscal, with 51% expecting raw material costs to remain elevated during the December quarter as compared to 59% in the previous quarter.