Business confidence index at three-quarter high in second quarter: CII

The rural economy has been on an upswing, as evident from the surge in fast-moving consumer goods (FMCG) sales and agricultural incomes in Q1 FY24

The Confederation of Indian Industry's Business Confidence Index (CII-BCI) rose to a three quarter high of 67.1 in the second quarter (July-September) of FY24 compared to 66.1 in the first quarter (April-June) on account of resilient domestic demand amid the global uncertainty.

“The uptick noted in the index was driven by resilient domestic demand along with sustained government spending and deleveraged balance sheets of corporates and banks, even as the global scenario remained grim,” said the latest report by the industry body. 

The index, covering about 200 firms of varying sizes, was composed during September 2023 and was released on Monday.

Earlier, the index stood at 67.6 in the third quarter (October - December) of FY23.  

The report notes that a conducive domestic policy environment and healthy performance of several macroeconomic indicators have sustained the growth momentum of the economy.

About 30 per cent of the respondents feel that the government’s increased focus on capital spending, especially on infrastructure, will be the biggest positive for domestic growth in the current fiscal year. 

Also, the rural economy has been gaining momentum as evident by the rising fast moving consumer goods (FMCG) sales and higher agriculture incomes in Q1 FY24. More than half of the respondents (52 per cent) anticipate that rural demand is likely to have improved during the first half of FY24. However, about 14 per cent of the respondents also felt that rural demand witnessed a decline during H1 FY24, given the erratic rainfall and slow crop sowing in the country. 

Chandrajit Banerjee, director-general, CII, said the expectation of an improvement in rural demand is reassuring and is required for an inclusive growth of the economy.

Besides, the report also notes that 58 per cent respondents anticipate that the central bank will stick to a pause in the repo rate during the second half to let the lagged impact of the rate hikes work and tame inflation.

“In recent months, the government has announced a slew of supply-side measures to tame inflationary pressures. Out of the key measures imposed, most respondents (34 per cent) feel that the government’s move to impose export duties on commodities will be the most beneficial to tame inflation,” the report added.

Also, close to one-third of the respondents (30 per cent) expect improved ease of doing business to help nurture the green shoots in private investment. And, a quarter of them anticipates that continued public capital expenditure (capex), especially in infrastructure-related sectors, will help crowd-in private investments. 

On the investment front, given the uncertainty in the global environment, 61 per cent said that there would be no change in their international investment plans in Q2 of FY24.

However, on the domestic front, about 48 per cent anticipated an increase in investment. It would be driven by higher macroeconomic stability of the economy. 

“Majority of the respondents had expected their capacity utilisation to be 75-100 per cent. This is an encouraging sign as capacity utilisation needs to be between 75 and 80 per cent to fuel fresh investments in the economy,” added Banerjee.