CII Business Confidence Index rebounds sharply to a two-year high in Oct-Dec FY23

Chandigarh, January 15, 2023: Reflecting the optimism around India being in a ‘sweet spot’ despite the rising global uncertainties, the latest CII Business Confidence Index (BCI) rebounded to its highest reading in almost two years of 67.6 in the Oct-Dec quarter (Q3FY23) from 62.2 in the previous quarter. The sharp improvement in the value of the index was buttressed by subsiding of concerns around the impending recession and its impact on the Indian economy.
 

The global economic growth is witnessing headwinds due to the tightening financial conditions and geopolitical tensions. However, an overwhelming 73 per cent of the survey respondents expect only a moderate impact of the global slowdown on the Indian economy. The confidence among respondents stems from the fact that a significant majority of them (86 per cent) believe that the government’s focus on infrastructure is the biggest positive for the Indian economy, followed by the improvement in tax collections and good consumption recovery.
 

In line with the latest first advance estimates of GDP for the current fiscal which have put the GDP print at 7.0 per cent, majority of the survey respondents (70 per cent) too, feel that the Indian economy will expand in a range of 6.5 per cent to 7.5 per cent from 8.7 per cent in the last fiscal. Growth is expected to moderate further in the next year on global headwinds. Hence, to support growth, it is critical that RBI refrains from raising the interest rates any further. Unsurprisingly, nearly half of the respondents (47 per cent) have indicated that they have already started feeling the impact of the policy rate hikes by the RBI on the overall economic activity.
 

High interest rates have impinged on private investment levels too. Currently most of the heavy lifting to support growth is being done by public capex, with private capex playing a supporting role. In addition to high borrowing costs, the prevailing heightened uncertainty has prevented firms from furthering their investment plans. The survey results, however, presents an encouraging prognosis with nearly all the respondents (90 per cent) feeling that their company’s investment cycle will recover during the next financial year, with around 52 per cent expecting the recovery during the first half of next fiscal while about 37 per cent of them foreseeing a pickup in investments by the second half of the year. This result is further strengthened by the fact that half of the survey respondents feel that the capacity utilization levels in their companies would range between 75-100 per cent during the Oct-Dec quarter.
 

Apart from reinvigorating investments, another key area of focus for policymakers has been on accelerating rural incomes, given the size of the Indian rural economy. The latter took a significant hit especially after the second wave of the pandemic and the more recent spike in inflation. It is encouraging to note that given its bearing on the overall economy, a recovery in the rural demand is eagerly awaited and about 60 per cent of the respondents feel that a pick-up in rural consumption will take place in the next fiscal.
 

With a resumption of business activity, expectations for the Oct-Dec quarter have improved as majority of the respondents anticipate an increase in sales (60 per cent) and count of new orders (55 per cent). Consequently, the profit outlook for the quarter has strengthened as nearly half of the respondents (47 per cent) foresee an increase in profit margins, despite the majority of them indicating high input costs. Nonetheless, input price pressures, though still elevated, have moderated from the previous fiscal, with 51 per cent of the respondents expecting raw material costs to remain elevated during the Oct-Dec quarter as compared to 59 per cent in the previous quarter.
 

The 121st Business Outlook Survey was conducted during November-December 2022 and saw the participation of more than 120 firms of varying sizes and across all industry sectors and regions of the country.