Sat. Jun 12th, 2021

Business sentiment recovers in Jul-Sep: CII Business Outlook Survey

CII Business Outlook Survey

The COVID-19 pandemic emerged as a sudden shock that caught everyone, government, businesses and consumers, off guard. The crisis not only had ramifications on people’s health but led to the complete shutdown of economic activity for months together impacting business sentiment and ushering in uncertainty. As the government has gradually unlocked the economy and business activity has resumed, the recent CII Business Outlook Survey shows that business sentiment has bounced back.

Commenting on the survey results, Mr Chandrajit Banerjee, Director General, CII said “It is heartening to note the recovery in CII’s Business Confidence Index for the Jul-Sep quarter indicating an improvement in business conditions during the period. However, while recovery is underway, it could be tremendously expedited through continued government support and handholding of businesses during this crisis”.

The latest CII Business Confidence Index has surged to the level of 50.3 in Jul-Sep 2020, bouncing back from its lowest reading of 41.0 recorded in Apr-Jun 2020. The stellar recovery in the index has been supported by the remarkable increase in the Expectations Index (EI), which rose 46% quarter-on-quarter, to the level of 55.2, as nation-wide lockdown restrictions were lifted, and businesses gradually began to reopen during the Jul-Sep quarter. The Current Situation Index (CSI), however, continued to trail below 50, at 40.6, depicting weak confidence during the Apr-Jun 2020- a period marked with stringent lockdown measures and complete shutdown of business operations.

The survey was conducted during August-September 2020 and saw the participation of more than 150 firms across all industry sectors, including micro, small, medium and large enterprises, from different regions. The results for the Jul-Sep quarter signal green shoots of recovery as nearly half of the respondents anticipate an increase in new orders (49 per cent) and sales (46 per cent) during the said quarter, even though a majority of them witnessed a decline in sales and new orders in the preceding quarter. As a result, capacity utilization levels are also expected to improve. A major share of the respondents (41 per cent) foresee higher utilization levels of 50-75% in the Jul-Sep quarter, closely followed by 37 per cent of the respondents anticipating capacity utilization at 75-100% in the said quarter.

Profitability, however, may be slightly harder to achieve during this pandemic as nearly half of the respondents continue to expect a decline in profits in the Jul-Sep quarter after a majority of them (76 per cent) experienced this in the preceding quarter.

As businesses still struggle to recover from the pandemic, more than half of the respondents (51 per cent) have indicated that the weakness in domestic demand is likely to be the topmost risk to business confidence in the next six months. Further, nearly 30 per cent of the respondents feel that business activity may return to the pre-pandemic levels by Q1 FY22. The heightened uncertainty led by the recurrent lockdown in certain states is impacting business operations and lengthening the recovery timeline even though a majority of the workforce has already returned to the place of work for a major share of the respondents (42 per cent). Effectively, a large share of respondents (37 per cent) foresee a return of capital spending to its pre-pandemic levels only by H1 FY22.

With regards to the general economic prospects, more than a third of the respondents (35 per cent) foresee a contraction higher than 4.0% in India’s GDP in the financial year 2020-21 as the significant setback to economic growth has been further aggravated by state-imposed lockdowns to curb local outbreaks. On the inflation front, nearly half of the respondents (46 per cent) feel that inflation may inch up further in the current financial as the supply-side disruptions, caused by the lockdown-led business shutdowns, have stoked price pressures. As a result, a large proportion of the respondents (37 per cent) feel that RBI may keep policy rates unchanged in the remaining part of FY21. The continued strain on economic activity will dissuade the central bank from raising rates despite inflation overshooting the target range for the fifth consecutive month.

With the Unlock 4.0 guidelines, the Government has allowed restart of almost all sectors to operate. However, there are still many ad hoc restrictions being imposed by the States which have been an impediment to the unlock process. These have also resulted in rising inflationary pressure, especially at the retail level. Such supply-side bottlenecks should be eliminated so that people and goods can move freely within States as well as between States to enable business operations to function normally.

The Government has announced several measures under the Atmanirbhar Bharat initiative to ease liquidity, provide income in the hands of people and further enhanced ease of doing business besides providing temporary relief from compliances and tax payments. Any additional measures could be directed at the stressed sectors such as tourism, civil aviation and real estate that are employment-intensive and need financial support to survive.

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