Business confidence drops: RBI

India Inc’s business confidence has been withering gradually and its business expectations have plummeted, according to surveys by different agencies, the Reserve Bank of India (RBI) said on Monday. RBI, which conducted the Industrial Outlook Survey during the July-September period, showed further decline in the business expectation index (BEI).

BEI is a composite indicator, based on the assessment of several business-related parameters for the assessment quarter, as well as the expectation quarter.

According to RBI, the business expectation index of leading industrial chambers and research institutions has seen a decline. The business expectation index of Confederation of Indian Industries was down 14 per cent in the second quarter, compared to the first quarter of the current financial year. The index stood at 53.6, lower than the crisis levels between October-March 2008-2009. The index declined 19 per cent for the Federation of Indian Chambers of Commerce and Industry during the same period.

Although the survey by industrial chambers shows a dip in optimism, the regulator feels the growth would not fall to the levels seen in 2008. “The current assessment is growth may moderate slowly, and not fall to the levels seen during the post-Lehman crisis,” said RBI.

The reasons for the deteriorating outlook were captured by the industrial outlook survey across various parameters, ranging from the cost of raw material, exports, imports and the availability of finance to profit margin.

“The demand conditions of the Indian manufacturing sector continued to moderate, as net responses on production, order books and exports declined for the assessment, as well as expectation quarters,” RBI said. The persistent high inflation, weakening demand, lower availability of credit and prevailing global uncertainties appear to be affecting the business sentiments of Indian companies, the regulator said.

Sector wise, the outlook on agriculture and allied sectors has been downgraded, while that for services has been marginally increased.

As a result of the poor business confidence, India’s growth story may also lose its sheen, as investment slows. According to RBI, investment in the economy may slow down further due to the slack domestic and external demand, high inflation, governance issues and a correction in the equity market, the same reasons for the poor business confidence.

Keeping in mind the volatile economic scenario, the regulator has advised a maintainance liquidity buffer by private and government enterprises. “In a financial world, several outcomes are possible, since perceptions of economic agents can shift fast, impacting their economic behaviour. It would, therefore, be necessary for all stakeholders — private or government — to quickly build upon the liquidity buffers and hedge against financial risks,” RBI said.