India Inc's business confidence improves on growth outlook: CII

NEW DELHI: India Inc's business confidence has improved on the back of Centre's "pro-reform" approach coupled with expectations of higher economic growth and moderate inflation, as per the CII Business Outlook poll.
The CII Business Confidence Index (BCI) improved marginally during Jan-March FY15, moving up to 56.4 from a level of 56.2 in the previous quarter.

"The survey reinforces our view that business sentiment has been turning positive on the back of pro-reforms approach of the government, a stable macro-economic environment and a focus on pertinent issues such as the Make in India campaign launched by the government," CII Director General Chandrajit Banerjee said.

A majority (55 per cent) of the respondents expect GDP growth to settle in the range of 6.5-7.5 per cent in FY15, in line with 7.4 per cent GDP growth in FY15 as per revised estimates of the Central Statistics Office.

"In a welcome sign, while GDP is expected to register high growth rate, inflationary expectations have moderated. A considerable proportion (72 per cent) of respondents believe that wholesale inflation will remain below 6 per cent level in FY15, which should provide legroom to RBI to soften the monetary policy in favour of growth," the survey said.

In further indication of macro-economic strengthening, around 72 per cent of respondents expect current account deficit (CAD) to be less than 2.5 per cent (of GDP) in FY15. India's CAD stood at 1.7 per cent for the first nine months of the current fiscal. The improvement in confidence level also assumes significance as the BCI was much lower at 49.9 in the same quarter last year.

The index value of 50 is the dividing line between positive and weak confidence index. However, moderation in domestic growth, slow revival of the global economy and high borrowing costs have emerged as the top three concerns affecting the economy, cited by respondents as the biggest downside risks to growth. The expectation of higher economic growth in the current fiscal is rooted in optimism about the overall demand situation. Around 58 per cent of respondents expected sales and new orders to increase during Jan-Mar FY15, up from 53 per cent in the previous quarter.

However, more than 50 per cent of respondents did not anticipate a change in their domestic investment plans in Jan-Mar FY15. Subdued investment plans, despite an expected surge in sales, can possibly be linked to the unutilized capacity available in the economy currently. Expectation of recovery in sales, coupled with sharp decline in input costs, has led to relatively higher proportion (47.6%) of respondents expecting an increase in profit-after-tax during Jan-Mar FY15, as compared to 33.6 per cent in the previous quarter. The survey is based on responses from over 150 industry members.

Majority of respondents (48%) belonged to large-scale sector, while medium and small scale companies comprised 17 per cent and 35 per cent, respectively.