CII survey shows a rising trend in Q4 business confidence

Much progress unlikely on fiscal, trade deficit in FY14, feel majority of respondents; presumption of slightly slower inflation

With signs of economic recovery and pushed by growth expectations, the business confidence index in India saw rising trends during the fourth quarter of the financial year, shows a survey by the Confederation of Indian Industry (CII).

The CII Business Confidence Index, which had slipped below the psychological 50-mark in the third quarter, rose to 51.3 in the final quarter. Though up from 49.9 during the third quarter, it is much below the 52.9 mark during the same quarter of 2011-12. "The index has strengthened but it is too early to assume the slowdown has bottomed out and the green shoots of recovery have begun to emerge," said Chandrajit Banerjee, Director General, CII.

The 82nd Business Outlook Survey is based on responses from 175 members. A majority of the respondents (53 per cent) belonged to large-scale companies, 14.8 per cent were from medium-scale ones and 25.2 per cent and seven per cent each from small-scale and micro firms, respectively. Further, 67.2 per cent of the respondents were from the manufacturing sector, while 31 per cent and 1.7 per cent were from the services and primary sectors, respectively.

About 62.2 per cent said their investments were either expected to decline or remain constant during the fourth quarter. A majority of the respondents rated high levels of corruption, persisting inflation, threat to continuation of the reform process, escalated interest rates and political uncertainty as major concerns. Encouragingly, respondents did not perceive the global economic and political uncertainty as a major worry.

A large proportion of the respondents (43.5 per cent) expect GDP growth to be 5-5.5 per cent for 2012-13, as compared to the advance estimate of five per cent issued recently by the Central Statistics Office. In an indication of improvement in economic growth in 2013-14, a majority expected GDP growth next year to conform to the official estimate of 6.1-6.7 per cent in the Economic Survey.

"For matching up to the government growth estimates for the next fiscal, it is critical we remain focused on introducing the critical reform measures. The Union Budget 2013-14 has indeed covered some distance in this direction but more measures are warranted," said Banerjee.

On inflation, there are no major surprises. About 42 per cent expect the average wholesale price index inflation to be in a range of seven to eight per cent in the current financial year. For 2013-14, about 38 per cent expect inflation to moderate to six to seven per cent, which should help the Reserve Bank of India to focus more on growth revival next year.

Even as the government remains committed to adhering to the target of fiscal consolidation, a majority of the respondents (62.4 per cent) expect the fiscal deficit to exceed the budgeted estimate of 4.8 per cent in 2013-14. On the current account deficit, too, the survey does not paint a rosy picture, with most respondents expecting it to be in a range of four to five per cent of GDP in both the current and the next financial year.