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India Inc's business sentiment recovers in July-September: CII survey

India Incs business sentiment recovers in July-September: CII survey
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India Inc's business sentiment recovers in July-September: CII survey

Highlights

India Inc's business sentiment has improved during the July-September quarter (Q2FY21) as the government gradually unlocked the economy and business activity resumed, according to the CII's business outlook survey.

India Inc's business sentiment has improved during the July-September quarter (Q2FY21) as the government gradually unlocked the economy and business activity resumed, according to the CII's business outlook survey.

CII in its release said, "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." It added, "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."

In a statement, the industry chamber said, the latest CII Business Confidence Index has surged to the level of 50.3 in July-September 2020, bouncing back from its lowest reading of 41.0 recorded in April-June 2020.

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".

It said, the stellar recovery in the index has been supported by the remarkable increase in the Expectations Index, which rose 46 per cent 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.

It says, profitability 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-September quarter after a majority of them (76 per cent) experienced this in the preceding quarter.

The survey was conducted during August-September 2020 and saw the participation of over 150 firms across different sectors. The statement said, nearly 30 per cent of the respondents feel that business activity may return to pre-pandemic levels by the first quarter of the next fiscal.

Findings of the Survey

1) 51 per cent of respondents have indicated that the weakness in domestic demand is likely to be the topmost risk to business confidence in the next six months.

2) Nearly 30 per cent of the respondents feel that business activity may return to the pre-pandemic levels by Q1 FY22.

3) 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 42 per cent respondents.

4) 37 per cent foresee a return of capital spending to its pre-pandemic levels only by H1 FY22.

Finding on General Economic Prospects

1) Contraction in Economy: 35 per cent of the respondents foresee a contraction higher than 4.0 per cent 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.

2) Inflation: 46 per cent of the respondents 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.

3) RBI Policy Rates: 37 per cent the respondents 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.

Unlock 4.0 Guidelines

The Government in the Unlock 4.0 guidelines allowed restart of almost all sectors to operate. However, there are still many ad hoc restrictions being imposed by the States which have impeded 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.

Atmanirbhar Bharat initiative

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 fiscal support to survive.

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