Business confidence jumped to the highest level in two years in October and December

The latest CII Business Confidence Index (BCI) jumped to 67.6 in the third fiscal quarter from 62.2 in the previous quarter, even as much of the world braces for an impending recession in advanced economies.

At a time when global growth is slowing due to tightening financial conditions and geopolitical tensions, 73% of respondents said they expect only a moderate impact of the global slowdown on the Indian economy.

Some 86% cited the government’s focus on infrastructure as a reason for their confidence, followed by higher tax collections and a good recovery in spending.

A majority of respondents (70%) said the economy would expand between 6.5% and 7.5% in FY23 (compared with 8.7% last fiscal), in line with first advance estimates , which amounted to 7%. However, growth is expected to slow further in FY24 due to global headwinds.

India’s central bank has been steadily raising interest rates since May 2022 to curb inflation.

Not surprisingly, almost half of the respondents (47%) said that they have already started to feel the impact of interest rate hikes on economic activity.

High interest rates also affected private investment levels.

Currently, most of the heavy lifting to support growth is done through public capital investment, with private capital investment playing a supporting role.

In addition to high borrowing costs, the prevailing heightened uncertainty has prevented companies from advancing their investment plans.

However, almost all respondents (90%) said that their company’s investment cycle will recover during the next financial year, with around 52% expecting a recovery during the first half of the next fiscal year and around 37% by the second half. This is further reinforced by the fact that half of the respondents said their companies’ capacity utilization levels will range from 75-100% during the December quarter.

Apart from reviving investment, another key area of ​​focus for policymakers is accelerating rural incomes, given the size of the rural economy.

The latter suffered a significant blow, especially after the second wave of the pandemic and the recent spike in inflation. Given its impact on the overall economy, a recovery in rural demand is eagerly awaited, with around 60% saying that rural consumption will recover in the next fiscal year.

With the resumption of business activities, expectations for the December quarter have improved, as the majority of respondents predict an increase in sales (60%) and the number of new orders (55%).

Consequently, the profit outlook for the quarter strengthened as almost half of respondents (47%) predicted an increase in profit margins, despite the majority pointing to high input costs.

Despite this, input price pressures, while still high, have eased compared to the previous fiscal year, with 51% expecting raw material costs to remain high during the December quarter compared to 59% in the previous quarter.