Business confidence on the decline: CII survey

September 4th, 2011 - 3:13 pm ICT by IANS  

New Delhi, Sep 4 (IANS) Uncertainty surrounding the global economy, rising cost of inputs and high interest rates have led to a decline in business confidence in the second quarter of the current fiscal, according a survey by Confederation of Indian Industry (CII).

According to CII?s quarterly business outlook survey, the business confidence index for the second quarter of 2011-12, has declined by 8.9 points as compared to a decline of 4.2 points in the previous quarter.

The survey was carried out over a month ending mid-August and is based on a sample size of 250 companies.

?The CII Survey reveals the impact of the global economic downturn as well as domestic factors that are generating uncertainty about the economic outlook,? said Chandrajit Banerjee, director general, CII.

?However, expectations for the second quarter indicate a modest recovery,? he added.

The business confidence index is constructed as a weighted average of the current situation index (CSI) and the expectations index (EI), which reflect respondents? assessment of the performance of their company, sector and the economy in the current quarter and the expectation from the coming quarter.

CSI com-pares the current business conditions in rela-tion to the previous quarter, while the EI reflects the expectations of the respondents of the ongoing quarter in comparison to the previous quarter.

For the quarter ending September, CSI fell by 9.9 points, while the EI slipped by 8.4 points.

When asked about growth prospects for the economy in 2011-12, the largest proportion of the respondents (29 percent) said they expected gross domestic product (GDP) growth to moderate to around 7.5-8.0 percent while 23.7 percent said it would be in the range of 8-8.5 percent.

“Bulk of the respondents (55.6 percent) expect average inflation to be above 8 percent in 2011-12, while a mere 9.9 percent expect it to be in the range of 6-7 percent,” said CII in a statement.

About 78 percent and 50.6 percent of the firms in the manufacturing and services sector respectively, experienced an increase in overall input costs in the first quarter of 2011-12 and majority expect it to remain high, it added.

A major concern that emerged in the survey was that most firms did not plan to increase investment plans in the second quarter of this fiscal.

“While most firms were planning to increase their spending on capacity expansion in the previous survey, the current survey reveals that a majority of firms are expecting no change in their spending,” said CII.

Capacity utilization of a majority of firms, which was recorded between 75-100 percent in the first quarter was expected to increase only marginally in the July-September period.

However, CII said, firms still hoped for a better performance in this quarter.

“On a brighter note, despite a fall in the overall business confidence index, most firms expect sales, production and new orders to increase in the second quarter of 2011-12 after having witnessed stagnation in the first quarter,” said the industry lobby.

“Also, majority of exporters are optimistic that volume of exports will increase in the second quarter of 2011-12 despite signs of global slowdown,” it added.

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