The latest round of FICCI’s Business Confidence Survey reported not much change in the sentiment of the respondents. The Overall Business Confidence Index stood at 70.5, a tad higher than the value of 70.4 in the previous survey. The various announcements made by the government over the course of last seven to eight months did have a positive impact on the sentiment of the business community; however in order to sustain this buoyancy it will be important that the process of implementation of these reforms continues with momentum.
- The respondents are pinning their hopes on the direction of reforms that the Finance Minister will indicate in his budget proposals.
- They expect the government to continue pursuing the broad economic agenda and take tangible steps towards its completion.
- It was unanimously felt by the respondents that the government should step up action on ease of doing business and especially towards simplification of taxes in the forthcoming Budget.
- A majority of the respondents also expect the passage of Goods and Services Tax (GST) bill.
- Further, the participants said that they are also looking forward to labour reforms and incentives for sectors including manufacturing, infrastructure and real estate.
As per the survey results, the proportion of respondents anticipating ‘moderately to substantially better’ performance over the near term noted a marginal slip at the economy, industry and firm level. Nonetheless, a majority of participants remained optimistic about the future prospects. 83% of the participants in the current survey cited a ‘moderately to substantially better’ overall economic situation over the next six months, vis-a-vis 84% stating likewise in the last round. The corresponding figure at the industry and firm level was 72% and & 74% respectively.
However, a sustainable turnaround is still elusive for parameters like investments, profits and exports. While the situation is certainly better when compared to last year, the change in quarter on quarter numbers are yet to indicate a firm turnaround.
In the current survey, only 33% of the companies participating in the survey expected ‘much higher to higher’ profits over the next two quarters. Over half of them did not foresee any change in profit levels.
The perception of the respondents with regard to export prospects also noticed moderation. Only 32% respondents said that they foresee higher exports over the next six months, compared to 47% stating likewise in the last round. The pace of global recovery is yet to pick and demand remains subdued.
The outlook with regard to investments still seems weighed down by caution and the projects are yet to take off. In the current survey, about 38% participants expected higher investments over near term; the corresponding number in the previous survey was around the same at 39%. A year ago 24% participants had stated likewise.
In fact, an increase was noted in the proportion of participants indicating both availability and cost of credit to be constraining factors. 34% of the respondents in the present survey indicated that availability of credit was a concern, vis-a-vis 28% stating likewise in the last round. Further, high cost of credit was reported as concern by 56% participants.
The lending rates being charged by the Banks remain high. Though the Reserve Bank had cut the repo rate by 25 bps in January 2015, we are yet to see a transmission of the rate cut through Banks.
Further, weak demand was reported to be a factor bothering the businesses by about 66% respondents. In the previous round, 59% companies had reported weak demand to be a constraining factor.
With GDP numbers indicating an improvement and inflation subsiding there are signs of a turnaround. However at the same time, the domestic capex cycle is yet to see a revival and consumer sentiment remains frail. Both the Government and Reserve Bank will have to assure continuous support going ahead.