ZyFin Research's Business Cycle Indicator slips to a year low at 7.9

Rising borrowing costs and policy deadlock crowd out consumption spending

ZyFin Research today announced its Business Cycle Indicator (BCI) for the month of August 2015. The index, which is a lead indicator to the Index of Industrial Production (IIP) trend, has registered a score of 7.9 in August as compared to 8.4 in July. The index stands at a year low since August 2014. The dismal score of the BCI raises concerns of the Indian economy achieving its targeted 7%-8% growth rate. Going by the BCI estimates, the IIP is expected to slow down during October, the official data for which will be available in December, 2015. Indian industrial sector has succumbed to poor demand in the wake of higher borrowing costs, uneven and disrupted monsoons and reining inflationary pressures in the economy. On the policy front, delays in implementing labour laws, the GST bill and land acquisition bill continue to play hindrance in posting industrial growth.

The ZyFin Business Cycle Indicator is a forward looking composite indicator of the Indian business cycle with a one month lead on the Index of Industrial Production (IIP). In current scenario, when world growth remains uncertain, lead indicators like the BCI can provide timely signals regarding the future course of local economies. The journey from the bottom of a business cycle to its peak has two parts, recovery and growth. In case of the BCI, a score between 5 till 12 is a reflection of a recovering cycle while growth cycle can be identified once the score breaches 12. Data analysts usually take a three month moving average of the BCI scores to comment on evolving trends.

The drop in the BCI was led by retreating foreign direct investments, sluggish trade performance expressed as slackening agricultural exports and restricted consumption activity. The ZyFin Research's Consumer Outlook Index at 46.4 witnessed a monthly dip of 2% in July'15 on apathetic rural spending on consumer durables and non-durables. However, encouraging data from government receipts, overall electricity production and improving foreign exchange reserves remain supportive.

Giving his views Mr. Debopam Chaudhuri, Chief Economist, ZyFin Research, said, The prevailing Parliamentary deadlock has delayed crucial decision making on burning issues like land acquisition bill and tax reforms, while labour reforms are still on the drawing board. The slowdown in reforms have made any recovery in India's ease-of-doing business rankings more distant. This is negatively impacting sentiment of stake-holders like domestic and foreign investors as well as consumers, who had pegged their hopes for sustainable recovery on efficient policy making.

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