India Inc’s sentiments take hit, Business Confidence Index falls to 51.5 from 74.2

India Inc’s sentiments take hit, Business Confidence Index falls to 51.5 from 74.2

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Hit by the second wave of COVID-19 pandemic, India Inc’s sentiments have taken a hit, with industry body FICCI’s Business Confidence Survey showing a sharp deterioration in the optimism level of corporate India.

“Worsening current conditions as well as muted expectations about the near-term prospects on the back of a sweeping second wave of coronavirus infections pulled down the overall index value by over 20 points. The Overall Business Confidence Index nosedived and stood at 51.5 in the current round after reporting a decadal high value of 74.2 in the previous survey round,” FICCI said in a release.

However, the Overall Business Confidence Index was higher than the value of 42.9, which was the lowest since the financial crisis, registered a year ago.

The survey, which was conducted during April-May 2021, gauged expectations of respondents for April-September 2021 period.

In the latest survey, about 70 per cent participants reported weak demand conditions as a bothering factor as compared to 56 per cent stating the same in the previous round. The corresponding number stood at 77 per cent last year.

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However, the companies reported improved capacity utilisation rate in the present survey despite weak demand conditions, which can be attributed to imposition of localised restrictions instead of a complete lockdown, ensuring industry remaining largely functional throughout.

A majority of survey participants expressed worry about rising raw material costs, with 65 per cent of them calling higher raw material costs as a constraining factor in the present survey as compared to 59 per cent stating likewise in the previous round.

“In the current survey, the proportion of respondents anticipating better sales prospects in the near term declined significantly to 31 per cent versus 66 per cent respondents stating likewise in the previous round. Consequently, companies have lost some control over their pricing power,” FICCI said.

The outlook on employment and exports also reported a deterioration, with only 19 per cent respondents optimistic about better hiring prospects over the next two quarters, while export prospects also worsened with only 27 per cent respondents indicating higher outbounds shipments.

Around 80 per cent of companies said that they were facing issues in carrying out their business amidst the fresh round of restrictions. They flagged weak consumer sentiment as the topmost concern, followed by non-availability of raw materials and manpower shortage

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“With household income being severely impacted and past savings already drawn down during the first wave of infections, demand conditions are expected to remain weak for longer this time around. Since a much larger proportion of the population has been impacted in the current wave, there has been permanent impairment to income for many households who have faced job losses or have lost bread earners to COVID-19,” the industry body said.

It said measures to support demand revival will be crucial for the economy to recover from the latest pandemic-induced shock, and called for significantly increasing the pace of vaccination for achieving faster normalisation.

While acknowledging the measures taken by the Reserve Bank of India to support businesses amidst the pandemic, the companies emphasised the problem in availing credit, and called upon the banking community to further enhance lending at a reasonable rate.

“…RBI should continue to ensure ample liquidity in the system and must take additional measures to encourage banks to lend more. It is essential that credit is provided to distressed segments of the industry, as well as to those segments which have adequate collateral or have great potential to generate more cash flows as the economy moves towards normalisation,” FICCI said.

The companies also called for another fiscal package, focusing majorly on addressing the demand side issue, and frontloading of capital expenditure by central and state governments.

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