Amidst expectations that economic activity would gather pace in the current year, there is optimism among companies that green shoots of recovery, which have started becoming evident, would be sustained. This finds a reflection in the CII Business Confidence Index (BCI) which has gone up to an all-time high of 64.1 during the fourth quarter of 2016-17 as against 56.5 recorded in the previous quarter. There has been a sharp rise in the CII-BCI after it remained subdued in the last few quarters.
Commenting on the recent rebound in business confidence, Chandrajit Banerjee, Director General, CII, stated that the turnaround in business expectations, as indicated in the survey, gives credence to the belief that a new growth narrative is being scripted for the country based on improved business sentiment and investor confidence. A sharp uptick in business outlook, at the onset of 2017, underpins the hope that the reform initiatives of the government would unravel a host of investment opportunities for firms, going forward.
These findings are a part of CIIÂ’s 98th edition of the quarterly Business Outlook Survey, which was based on around 200 responses from large, medium, small and micro firms, covering all regions of the country.
The significant rise in the index this quarter could be attributed to the distinct improvement in the Expectations Index even as there is a marginal uptick in the Current Situation Index, indicating that business sentiment is strong and firms are particularly upbeat about activity in their sectors in the future.
Business conditions are expected to improve as over 63 per cent of the firms expect an increase in sales in Jan-Mar 2017, as compared to only 39 per cent who experienced the same in October-December 2016.
On similar lines, 60 per cent of the respondents anticipate an increase in new orders during Jan-Mar 2017 as compared to 41.0 per cent who witnessed the same in the preceding quarter. Much of the recovery in business conditions is expected to be domestically driven as a large proportion of firms (61.8 per cent) expect to maintain the status quo on their export orders in Jan-Mar 2017.
In an indication that the turn of the investment cycle is now imminent, firms expect an improvement in capacity utilisation in the fourth quarter of FY17. This is borne out from the fact that around 65 per cent of respondents expect capacity utilisation levels to be above 75 per cent, while only 36 per cent of respondents experienced the same in the Oct-Dec 2016 quarter.
Despite the rise in capacity utilisation, a majority of firms expect no change in their domestic and international investment plans in Jan-Mar 2017. More than half of the firms expect to maintain status quo on their plans about investing in the domestic economy in the Jan-Mar 2017 quarter. Firms are keeping investment plans on hold despite the expectation of an improvement in sales and new orders in the Jan-Mar 2017 quarter owing to the existing excess capacity in the economy.
Firms, when asked to rank their concerns in the coming six months, have stated low domestic demand followed by fragile global economic recovery and rise in commodity prices as their key concerns.