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Highlights The CII Business Confidence Index (CII-BCI) remained almost unchanged at 51.2 for April-June 2013 quarter as compared to the previous quarter. GDP growth is expected to lie in a range of 6.0-6.5 per cent for 2013-14 by 47.8 per cent of the respondents, while 36 per cent of them expect GDP to decelerate below 6 per cent for the said year. Worryingly, as far as WPI inflation is concerned most of the respondents (40 per cent) expect it to lie above 7 per cent for the current fiscal. 60 per cent of respondents expect fiscal deficit to lie in a range of 4.5-5.5 per cent of GDP in 2013-14, while 51 per cent expect current account deficit in a range of 4.0-5.0 per cent of GDP in the current fiscal. Most of the respondents expect gold prices to decline moderately in 2013-14, while most of them expect crude oil prices to increase moderately. Most of the respondent firms expect both repo rate and CRR to be cut by 50 basis points during the current fiscal. Large number of respondents (45.2 per cent) expect their domestic investments to decline or show no change during the first quarter of the current fiscal, while 43.9 per cent expect them to increase during the quarter. In a sign of improving capacity utilization, most of the respondents (48.3 per cent) expect it to remain above 75 per cent in the first quarter of the current fiscal. The survey reveals that most of the respondents expect increase in their sales, new orders and value of production in the first quarter of 2013-14, while inventory levels, credit availability and employment are expected to remain largely unchanged. Overall, expectations for pre-tax profits are encouraging for the 1QFY14 as there has been an increase in the proportion of respondents who expect it to augment from fourth quarter of FY13. 1
Over 56.8 per cent of the respondents experienced an increase in the electricity & fuel cost and wages & salaries during January-March 2013, while close to 70.0 per cent of the respondents reported no change in the cost of credit. With regards to raw material cost, majority of them (89.1 per cent) found it to be either unchanged or increased. Expectations for the April-June 2013-14 are found to be on similar lines except for the credit cost as relatively a larger proportion of respondents (18.7 per cent) expect it to decline as compared to the previous quarter. Export and new orders are expected to increase in 1QFY14 as reported by a higher proportion of respondents, due to positive developments in US and Asian market economies. Imports are also expected to surge in 1QFY14 due to robust domestic demand. Expected Exchange Rate to remain above Rs. 54 mark by end-march 2014. In the 83 rd Business Outlook Survey Domestic Economic/Political Instability, High Levels of Corruption and Infrastructure & Institutional Shortages emerged as the three topmost concerns of most firms. 2
I. Business Confidence Index CII Business Confidence Index (CII-BCI) remained almost unchanged at 51.2 for April-June 2013 as compared to the previous quarter. The reading for the January- March 2013 quarter had risen above the psychological 50-level mark to 51.3, after dipping to 49.9 in the October-December 2012 quarter. This status-quo in the index value mirrors the air of uncertainty still lingering over the India Inc regarding the present business prospects. Additionally, it also belies the hopes of an early turnaround as was expected by many economy watchers. The respondents in the survey were asked to provide a view on the performance of their firm, and the economy based on their perceptions for next quarter. The CII-BCI is then constructed as a weighted average of the Current Situations Index (CSI) and the Expectation Index (EI). The Expectation Index (EI) which reflects the expectations of the respondents for April-June 2013 quarter weakened by 0.9 points from the level in the previous quarter. 3
Quarterly Business Confidence Index (BCI) Index Q3* FY11 Q4 FY11 Q1 FY12 Q2 FY12 Q3 FY12 Q4 FY12 Q1 FY13 Q2 FY13 Q3 FY13 Q4 FY13 Q1 FY14 Business Confidence 66.2 66.7 62.5 53.6 48.6 52.9 55.0 51.3 49.9 51.3 51.2 Index Current Situation Index 64.0 62.7 62.6 52.7 47.7 54.7 51.9 47.5 48.6 47.1 48.7 Overall Economy 65.0 59.9 61.1 49.2 44.5 49.4 48.9 36.3 44.5 44.2 44.5 Own Activity Sector 63.2 63.0 61.8 51.8 46.0 46.9 46.9 44.6 45.9 46.3 46.1 Own Company 64.3 63.4 63.7 54.4 50.0 56.3 56.3 53.2 51.7 48.7 51.7 Expectation Index 67.3 68.7 62.4 54.0 49.1 51.9 56.5 53.2 50.6 53.4 52.5 Overall Economy 66.0 65.6 61.1 48.5 44.2 48.9 52.8 44.6 47.5 49.1 49.4 Own Activity Sector 66.3 68.8 61.1 53.7 47.5 46.9 53.5 49.8 48.1 52.2 50.6 Own Company 68.4 69.7 63.7 56.1 51.7 56.3 59.7 58.4 53.3 55.7 54.7 * The Survey is conducted on a quarterly basis since the 74 th Business Outlook Survey Business Confidence Index 63.9 66.3 61.0 56.3 58.7 66.1 67.6 66.2 66.7 62.5 53.6 48.6 52.9 55.0 51.3 49.9 51.3 51.2 H1 2007-08 H2 2007-08 H1 2008-09 H2 2008-09 H1 2009-10 H2 2009-10 H1 2010-11 Q3 2010-11 Q4 2010-11 Q1 2011-12 Q2 2011-12 Q3 2011-12 Q4 2011-12 Q1 2012-13 Q2 2012-13 Q3 2012-13 Q4 2012-13 Q1 2013-14 4
II. General Business Prospects Growth & Inflation GDP expected to recover to a range of 6.0-6.5 per cent in 2013-14, while WPI inflation to lie above 7 per cent Expected Economic Growth in 2013-14 7.5% - 7.0% - 8.0%, 0.6 7.5%, 3.7 > 8.0%, 0.6 6.5% - 7.0%, 11.2 <6.0%, 36.0 Above 7.0%, 40.0 Expected WPI Inflation in 2013-14 <5.0%, 2.6 5.0% - 5.5%, 8.7 5.5%- 6.0%, 29.6 GDP growth is expected to lie in a range of 6.0-6.5 per cent for 2013-14 by 47.8 per cent of the respondent firms, while 36 per cent of firms expect GDP to decelerate below 6 per cent for the said year. This is in line with CII expectations for GDP to lie between 6.0-6.4 per cent for the current year. Worryingly, as far as WPI inflation is concerned most of the respondent firms (40 per cent) expect it to lie above 7 per cent for the current fiscal which is way higher than our forecast of 5.5-6.0 per cent. Additionally, 33 per cent of respondent firms expect inflation to lie in a range of 6.5-7.0 per cent for the current year. 6.0%- 6.5%, 47.8 6.5-7.0%, 33.0 6.0%- 6.5%, 26.1 5
The Twin Deficits- Fiscal & Current Account 60 per cent of respondents expect fiscal deficit to lie in a range of 4.5-5.5 per cent of 5.0 per cent of GDP in the current fiscal Almost 60 per cent of the respondent firms expect fiscal deficit to lie in a range of 4.5-5.5 per cent of GDP in 2013-14 as against the budgeted 4.8 per cent of GDP for the year. 23.3 per cent of respondents see the fiscal deficit lying above 5.5 per cent of GDP in the current fiscal. The upside risks to fiscal deficit are high this year given the fact that sluggish GDP output would adversely impact the tax collections and the ambitious disinvestment target would be at risk due to the not-so-favorable market conditions. The current account deficit (CAD) continues to remain a major problem for the policy makers. As per the survey, majority of the respondent firms (51 per cent) expect current account deficit to lie in a range of 4.0-5.0 per cent of GDP, while 33.3 per cent expect it to exceed 5 per cent of GDP in the current fiscal. This is way higher than the 2.5-3.0 per cent range deemed sustainable by RBI. 5.5-6.0%, 12.6 Above 6.0%, 10.7 5.0%- 5.5%, 30.2 Expected Current Account Deficit in 2013-14 Expected Fiscal Deficit in 2013-14 <3.5%, 1.9 >5.5%, 15.1 3.5%-4.0%, 13.8 <4.0%, 1.9 GDP in 2013-14, while 51 per cent expect current account deficit in a range of 4.0-4.0%- 4.5%, 14.5 4.5%- 5.0%, 30.2 5.0%-5.5%, 18.2 4.5%-5.0%, 22.6 4.0%-4.5%, 28.3 6
Commodity Price Movements- Oil & Gold Most of the respondents expect gold prices to decline moderately in 2013-14, while most of them expect crude oil prices to increase moderately 38.8 per cent of the respondent firms expect gold prices to decline moderately in 2013-14 as compared to the last year s prices, while 28 per cent and 25 per cent expect the prices to remain same and increase moderately respectively over the same time period. On the other hand, most of the respondent firms (42.8 per cent) expect crude oil prices to increase moderately in the current fiscal. Gold Crude Oil 7
Monetary Policy Response Most of the respondent firms expect both repo rate and CRR to be cut by 50 basis points during the current fiscal Majority of the respondent firms (53.5 per cent) expect repo rate to be cut by 50 basis points (bps) during the current fiscal year, while most of the respondents (46.1 per cent) expect CRR to be cut by 50 bps. 26.5 per cent of respondent firms expect repo rate to be cut by 100 bps during the year, while only 14.2 per cent expect the cut to be more than 100 bps. 8
III. Business Prospects Capacity Expansion & Capacity Utilization Spending on capacity expansion by most of the respondents show no change in 1QFY14, while capacity utilization is expected to remain healthy Reflecting the sluggishness in the current economic situation, the respondent firms spending on capacity expansion has remained lukewarm. The survey revealed that most of the respondent firms (49.7 per cent) expect no change in their spending on capacity expansion in April-June 2013 quarter, while only 31.1 per cent of respondents expect it to increase during the said quarter. Encouragingly, most of the respondents (48.3 per cent) expect capacity utilization to lie in a range of 75-100 per cent in the first quarter of 2013-14, which is indeed an encouraging sign as it indicates that firms expect demand to recover in the months to come. 9
Investment Plans Large number of respondents expects either no change/decline in their domestic and international investment plans in 1QFY13 According to the survey, a large number of the respondents (45.2 per cent) expect their domestic investments to show either a decline or no change in the April-June 2013 quarter, while 43.9 per cent expect them to increase during the quarter. Mirroring this, most of the respondents (39.5 per cent) too expect their international investments to either decline or show no change in the first quarter of 2013-14, while 37 per cent expect them to increase over the same time period.. Expectation of Investment Plans in Apr-June of 2013-14? 45.2 39.5 27.7 27.7 23.5 12.9 3.2 11.0 7.6 1.7 Decline or no change by 0-10% by 10-20% by >20% Not Applicable Decline or no change by 0-10% by 10-20% by >20% Not Applicable Domestic Investments International Investments 10
IV. Overall Trends Overall sales Sales to pick-up as nearly 44.4 per cent of the respondents expects it to increase in 1QFY14 In an encouraging sign, 44.4 per cent of respondents expect their sales to record a jump in April-June 2013 quarter, while 32.7 per cent expects no change. As for the actual sales trend in January-March 2013, about two-fifth (38.4 per cent) of the respondents saw their sales increasing while 37.1 per cent reported no change. This is indeed a healthy sign for the economy and bodes well for growth prospects. Overall Sales 44.4 38.4 37.1 32.7 24.5 22.9 No Change Decline Actual January-March 2013 Expected April-June 2013 11
New Orders Outlook for new orders appears positive for 1QFY14 as close to half of the respondents expect an increase The surge in new orders as revealed by 36.7 per cent of the respondents during January- March 2013 was well supported by the increase in sales. However, about a fourth (24.5 per cent) posted a decline in new orders in the reference period. The outlook for new orders looks positive in the first-quarter of 2013-14; as close to half of the respondent firms (46.6 per cent) expecting an increase, while only a few (18.2 per cent) expecting a decline. New Orders 36.7 38.8 24.5 46.6 35.1 18.2 No Change Decline No Change Decline Actual January-March 2013 Expected April-June 2013 12
No Change Decline No Change Decline 83 rd Business Outlook Survey Value of Production Value of production to improve as revealed by two-fifth of the respondents Decent rise in new orders and sales have helped in improving the value of production during January-March 2013. 38.8 per cent of the respondent firms witnessed an increase in their value of production, while 37.4 per cent of them saw no change. The expectations for the April-June 2013 quarter have improved, with majority of the respondents (82.1 per cent) expecting either an increase or no change in their value of production. Only a few (17.9 per cent) expect it to decline due to rising cost of inputs and slow-down in demand. Value of Production 38.8 37.4 23.7 40.7 41.4 17.9 Actual January-March 2013 Expected April-June 2013 13
Inventory Expectations for 1QFY14 appear somewhat better as a greater percentage of firms expect inventories to decrease; reflecting better sales in 1QFY14 Most of the respondent firms (44.5 per cent) witnessed no change in the inventory levels in the fourth-quarter of 2012-13 due to status- quo of the economic environment both domestic and global; while 38.0 per cent of respondents witnessed an increase in inventory level. Expectations for the April-June quarter of 2013 appear somewhat better as a greater percentage (22.3 per cent) of firms expect inventories to decrease, opposed to 17.5 per cent in the previous quarter. Inventories 17.5 22.3 44.5 48.2 38.0 29.5 Actual January-March 2013 Expected April-June 2013 No Change Decline 14
Availability of Credit Expectations for 1QFY14 are almost on the similar lines; an overwhelming majority of the respondents expects credit availability to remain either stagnant or increase As regard to the availability of credit, an overwhelming majority of respondents (86.9 per cent) saw their availability of credit either unchanged or increase during January-March 2013. Expectations for the first-quarter 2013-14 too reveal almost similar trend, with bulk of the respondent firms (89.9 per cent) expecting the availability of credit to either remain stagnant or increase, in contrast 10.1 per cent expecting a decrease in credit availability. Availability of Credit Decline 13.1 10.1 No Change 72.3 71.2 14.6 18.7 Actual January-March 2013 Expected April-June 2013 15
Employment Employment levels to remain unchanged according to more than half of the respondents during 1QFY14 Persistently weak economic condition has left the employment levels unchanged in the country during the fourth-quarter of 2012-13, as reflected from the responses of majority of the respondent firms (57.7 per cent); while 16.8 per cent saw a decrease in their employment levels. Expectations for the April-June of fiscal year 2013-14 reveal that, once again majority of the respondent firms (58.4 per cent) expect no change in their employment levels, while 14.8 per cent expect it to decline. However, expectations have improved marginally as 26.8 per cent foresee an increase in it in the first-quarter of 2013-14 as compared to 25.5 per cent in the previous quarter. Employment 57.7 58.4 25.5 26.8 16.8 14.8 No Change Decline Actual January-March 2013 Expected April-June 2013 16
Pre-Tax Profits Expectations for pre-tax profits is encouraging for the 1QFY14 as lower proportion of respondents expects it to decline from fourth quarter Mirroring the gloomy macroeconomic scenario, majority of the respondent firms (43.0 per cent) saw their pre-tax profits declining during January-March 2013, while a little over a fifth (28.2 per cent) posted an increase in the profits and about the same saw no change. The positive news is that the number of respondent firms expecting a decline in their pre-tax profits during April-June 2013-14 is now much lower at 30.8 per cent, while an even higher 32.9 per cent expect it to increase as compared to the fourth-quarter of the last fiscal. Pre Tax Profit 43.0 28.9 30.8 36.4 28.2 32.9 Actual January-March 2013 Expected April-June 2013 No Change Decline 17
No Change Decrease No Change Decrease No Change Decrease No Change Decrease 1.4 2.1 2.7 2.8 7.4 10.9 12.0 23.5 23.1 18.7 29.9 32.9 26.4 44.2 42.1 44.9 45.9 40.4 56.8 68.8 65.0 70.8 69.1 58.2 83 rd Business Outlook Survey Raw Material Cost Input cost specially electricity & fuel and wages & salaries are expected to rise during 1QFY14 according to more than half of the respondents; while cost of credit to decline by a relatively larger proportion of respondents Over 56.8 per cent of the respondents firms experienced an increase in the electricity & fuel cost and wages & salaries during January-March 2013, while close to 70.0 per cent of the respondents reported no change in the cost of credit. With regards to raw material cost, majority of them (89.1 per cent) found it to be either unchanged or increased. Expectations for the April-June 2013-14 are found to be on similar lines except for the credit cost as relatively a larger proportion of respondents (18.7 per cent) expect it to decline as compared to the previous quarter. This could be explained by likely cut in policy rates by RBI to support feeble economic growth trajectory in the backdrop of moderating inflation. Raw Material Cost Actual January-March 2013 Expected April-June 2013 Raw Material Cost Electricity and Fuel Cost Wages & Salaries Cost Cost of Credit 18
V. Export and Import Trends Volume of Exports and New Orders Export and new orders are expected to increase in 1QFY14 as reported by a higher proportion of respondents In the fourth quarter of 2012-13, more than half (52.9 per cent) of the respondent firms recorded no change in export volumes, while 28.8 per cent recorded an increase and rest posted a decline. This shows that the respondent firms were largely able to maintain their exports volumes due to selling in new markets other than the traditional ones. Expectations for April-June 2013-14 reveals that majority continue to expect exports volume to increase or remain unchanged, while about a tenth (11.1 per cent) expects it to decline. Signs of improvement in US and Asian market economies are expected to boost Indian exports in the 1QFY14. With regard to new orders, the survey revealed that most of the respondent firms (53.5 per cent) witnessed unchanged levels in January-March 2013, while 25.7 per cent registered an increase and 20.8 per cent saw a decline in new orders. However, during April-June 2013-14, majority (87.7 per cent) expect new orders either to increase or remain unchanged. 19
Volume of Imports Imports are also expected to increase in 1FY14 due to robust domestic demand With regard to imports in January-March 2013, volume remained unchanged for three-fifth (62.5 per cent) of the respondent firms, while 23.1 per cent of firms registered an increase in the import volumes. It appears that strong domestic demand has superseded the dampening impact of rupee depreciation on imports. Expectations for the first-quarter of 2013-14 show similar trends, with majority expecting volume of imports to either increase or remain unchanged. However, the share of respondents who expect import volume to decrease remained almost stable at 13.3 per cent. Trade Actual January-March 2013 Expected April-June 2013 No Change Decrease No Change Decrease No Change Decrease 28.8 43.5 52.9 45.4 18.3 11.1 25.7 44.3 53.5 43.4 20.8 12.3 23.1 36.2 62.5 50.5 14.4 13.3 Volume of Exports New Orders Volume of Imports 20
Exchange Rate Exchange Rate to remain above Rs. 54 mark by end-march 2014 More than half (54.5 per cent) of the respondents expects exchange rate to remain depreciated and above Rs. 54 mark by end- March 2014. >Rs. 55, 24.0 Expected Exchange Rate by March 2014 <Rs. 50, 0.6 Rs. 50-51, 6.5 Rs. 51-52, 5.8 Rs. 52-53, 14.3 Rs. 54-55, 30.5 Rs. 53-54, 18.2 21
Domestic Economic/political instability High Levels of Corruption Infrastructure and Institutional Shortages Slackening Consumer Demand High interest tates Persistent High Inflation High Raw material Cost Burgeoning Fiscal Deficit Burgeoning Current Account Deficit Deterioration in Law and Order condition in Country High Commodities Cost Low exports due to global uncertainties Inadeqaute skilled labors Risk from exchange rate volatility 83 rd Business Outlook Survey VI. Business Concerns Domestic Economic/Political Instability, High Levels of Corruption and Infrastructure & Institutional Shortages emerged as the top three foremost concerns for the firms In the 83 rd Business Outlook Survey Domestic Economic/Political Instability, High Levels of Corruption and Infrastructure & Institutional Shortages emerged as the three topmost concerns of most firms. The current survey revealed that Risk from Exchange Rate Volatility is the lowest ranked concern for businesses at this point in time. Business Outlook: Concerns 4.0 3.9 3.7 3.6 3.5 3.5 3.5 3.4 3.4 3.4 3.3 3.3 3.3 3.0 22
VII. Coverage & Methodology CII s 83 rd Business Outlook Survey is based on sample survey of firms covering all industry sectors, including micro, small, medium and large enterprises from different regions. The survey also enumerated responses across industry groups both in public and private sectors engaged in manufacturing and services sector. The survey was conducted from April-June 2013-14 Majority of the respondents (57.2 per cent) belonged to large-scale firms, while 9.9 per cent were from medium-scale firms and 27.3 per cent and 5.6 per cent each were from small-scale and micro firms respectively. Sectoral break up shows that 60.9 per cent of the respondents were from manufacturing sector while 36.6 per cent and 2.5 per cent were from services and primary sector respectively. CII-BCI is calculated as a weighted average of the Current Situation Index (CSI) and the Expectation Index (EI), with greater weight given to EI as compared to CSI. These indices are based on questions pertaining to performance of the economy and respondent s firm. Respondents are asked to rate the current and expected performance on a scale of 0 to 100. A score above 50 indicates positive confidence while a score above 75 would indicate strong positive confidence. On the contrary, a score of less than 50 indicates a weak confidence index. In the construction of the two sub-indices, the highest weight is given to the questions related to the performance of the individual firm, and the lowest weight is assigned to the questions on the economy. The weights are assigned on the basis of the premise that the average respondent would possess more detailed and accurate knowledge on the current and expected performance of his own firm than the economy as a whole. ****************** 23
The Confederation of Indian Industry (CII) works to create and sustain an environment conducive to the development of India, partnering industry, Government, and civil society, through advisory and consultative processes. CII is a non-government, not-for-profit, industry led and industry managed organization, playing a proactive role in India's development process. Founded over 118 years ago, India's premier business association has over 7100 member organizations, from the private as well as public sectors, including SMEs and MNCs, and an indirect membership of over 90,000 companies from around 257 national and regional sectoral associations. CII charts change by working closely with Government on policy issues, interfacing with thought leaders, and enhancing efficiency, competitiveness and business opportunities for industry through a range of specialised services and global linkages. It also provides a platform for consensus-building and networking on diverse issues. Extending its agenda beyond business, CII assists industry to identify and execute corporate citizenship programmes. Partnerships with over 120 NGOs across the country carry forward our initiatives for integrated and inclusive development, in affirmative action, healthcare, education, livelihood, diversity management, skill development, empowerment of women, and water, to name a few. The CII Theme for 2013-14 is Accelerating Economic Growth through Innovation, Transformation, Inclusion and Governance. Towards this, CII advocacy will accord top priority to stepping up the growth trajectory of the nation, while retaining a strong focus on accountability, transparency and measurement in both the corporate and social eco-system, building a knowledge economy, and broad-basing development to help deliver the fruits of progress to many. With 63 offices including 10 Centres of Excellence in India, and 7 overseas offices in Australia, China, France, Singapore, South Africa, UK, and USA, as well as institutional partnerships with 224 counterpart organizations in 90 countries, CII serves as a reference point for Indian industry and the international business community. Confederation of Indian Industry The Mantosh Sondhi Centre 23, Institutional Area, Lodi Road, New Delhi 110 003 (India) T: 91 11 45771000 / 24629994-7 F: 91 11 24626149 E: info@cii.in W: www.cii.in Reach us via our Membership Helpline: 00-91-11-435 46244 / 00-91-99104 46244