Modi factor pushes up CII business confidence index

Respondents to a survey by the Confederation of Indian Industry (CII) are more upbeat about the economy and their businesses in the first quarter of 2014-15 than the previous quarter, pinning hopes on the new government.

The CII Business Confidence Index (CII-BCI) for the April-June quarter of 2014-15 rose to 53.7 points from 49.9 in the fourth quarter of the previous financial year. The number 50 is the dividing line on the index between strong and weak business confidence.

CII Director-General Chandrajit Banerjee said, “The expectations, that a stable government at the Centre would bring growth back to India, along with a mild upturn in some economic indicators in the form of recovery in exports, decline in twin deficits, buoyant foreign capital inflows, strengthening rupee and moderating inflation, has provided a boost to business sentiments.”

However, the index was only at a two-month high since it was lower than the third quarter of 2013-14, when it had stood at 54.9 points. On a year-on-year basis, the index was higher than the first quarter of 2013-14 when it was at 51.2 points.

Banerjee expected the index to gather momentum in the coming days, riding on improved sentiments and business confidence.

The CII survey is based on responses from over 150 industry members. A majority of the respondents (50 per cent) belong to the large-scale sector, while medium-scale companies comprise 13 per cent. Around 30 per cent and seven per cent, respectively, are from small-scale and micro firms.  

A majority of the respondents were optimistic about gross domestic product growth, inflation, twin deficits and stability of the rupee against the dollar in 2014-15.

While GDP growth is expected to pick up from 4.7 per cent in FY14 to 5.5-6 per cent in FY15, Wholesale Price Index-based inflation is expected to moderate from an average of six per cent to 5.5-6 per cent during this period. The key to normalisation of the economy lies in restoring the high growth trajectory coupled with low inflation, Banerjee said.

Expectation of higher economic growth in the current year is rooted in optimism about the overall demand situation.

About 56 per cent of the respondents expected their sales and new order to increase in the first quarter of 2014-15, which was much higher than the previous quarter, wherein only around 35 per cent respondents projected a rise in sales. Similarly, a majority of the respondents expected their investment, domestic as well as international, to go up during the current quarter.