Higher domestic demand to bolster private investments

Two-thirds of the survey’s respondents expect sales and new orders to increase in the second quarter of FY24 faster than in the previous quarter, while half the respondents (53%) feel that capacity utilization in their company would be 75-100% in the September quarter.

About 67% of the survey’s respondents also anticipated an increase in sequential sales in the second quarter of the current fiscal, while 64% of respondents anticipated an increase in new orders during the same period.

The survey, conducted in September, covered about 200 companies of varying sizes from across the country. “In the last two surveys, too, the majority of respondents had expected their capacity utilization to be in the range of 75-100%, which is an encouraging sign as capacity utilization needs to be maintained between 75 and 80% to fuel fresh investments in the economy,” CII director-general Chandrajit Banerjee said.

“The expectation of an improvement in rural demand is reassuring and is much required for the inclusive growth of the economy,” Banerjee added.

In August, chief economic adviser V. Anantha Nageswaran had said that private sector capital formation, supported by the government’s capex push, had taken off, with investment intentions coming back in a big way.

He added that while growth prospects for India appeared bright, external factors (slowing global growth and rising oil prices) posed a great risk to the economy.

The government, which has allocated a record capex budget of ₹10 trillion for FY24, hopes to drive growth with public spending, thus opening up employment and investment opportunities. Investments give fresh growth impetus to an economy.

Overall, the CII-BCI index rose to a nine-month high during the September quarter, driven by resilient domestic demand, sustained government spending and deleveraging of corporate and bank balance sheets, the industry body said.

A host of high-frequency indicators, such as goods and services tax (GST) collections and air and rail passenger traffic, also sustained the positive momentum during the period, the survey titled ‘Business Outlook Survey: July-September 2023’ added.

The CII Business Confidence Index rose to 67.1 during the September quarter, up from 66.1 during the preceding three months and 64 during the March quarter. The index stood at 67.6 during the December quarter and 62.2 during the preceding three months.

CII-BCI gives an indication of the economy of the country, which is headed for several state elections later this year and the general elections next year. Key economic factors such as inflation and employment can play a key role in the voting pattern of the citizens.

While 66% of respondents expected the country’s economic growth in terms of its gross domestic product (GDP) to come in the range of 6-7% during FY24, 52% of respondents expected rural demand to pick up during H1FY24 (March-August).

Recently, the World Bank kept its economic growth projection for India at 6.3% for FY24, the same as its April estimate, stating that the economy faces challenges from adverse global factors affecting demand and consumption. Despite growing significantly faster than most developed nations, India currently faces key economic challenges, including inflation and slow rural demand, apart from lower demand for manufacturing exports.

Rising oil prices remain a concern as it directly impacts inflation. With agriculture being a significant contributor to India’s GDP and rural areas heavily dependent on agricultural activities, a slowdown in rural demand can negatively impact consumption.

Retail inflation, or consumer price index (CPI)-based inflation, moderated to 6.83% in August from a 15-month high of 7.44% in July as vegetable prices fell. However, it continues to exceed the Reserve Bank of India’s (RBI’s) target range of 2-6%.

The CII-BCI survey said that supply-side measures announced by the government, which include releasing substantial cereal stocks from reserves, proactive import-export management of pulses to ensure supplies and restriction of exports of rice and sugar, have helped tame inflation. “Notably, out of the key measures imposed, one-third of the survey respondents noted that imposing export duties on commodities will be the most beneficial to tame inflationary pressures, followed by open market operations (26% of the respondents),” the survey said, adding that 55% of the survey respondents saw an improvement in the ease of doing business. Along with the government’s thrust on capital spending, this may help further crowd in private investments.

“This will stimulate growth in other sectors of the economy through its multiplier effect,” it added.

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Updated: 08 Oct 2023, 11:57 PM IST