Mumbai: Indian corporates remained upbeat about the business environment during the first quarter of FY17 as they are expecting an improvement in demand conditions due to the implementation of seventh pay commission awards, progress of favourable monsoon and pro-active reform agenda of the government, said a survey conducted by industry body CII.
The CII Business Confidence Index (BCI) increased to the level of 57.2, up from the level of 54.1 recorded in the previous quarter. The index has been steadily climbing since the last three quarters.
The increase in the business sentiment this quarter has been backed by strong expectation of economic growth for the current fiscal year, with more than 60 per cent of the firms expecting real GDP growth to range between 7-8 per cent in FY17.
The respondents in the survey were asked to provide a view on the performance of their firm, sector and the economy based on their perceptions for the previous and current quarter. Despite the recent uptick in inflationary pressures, a significant share of the respondents (78 per cent) expect the consumer price inflation (CPI) inflation to hover around 5 per cent in 2016-17, in line with the RBI’s expectation for the financial year. On the likelihood of rate cut in the coming months, majority of the respondents (64 per cent) remained optimistic about a cut in interest rate by the RBI in order to support the domestic economy while the global environment continues to remain challenging.
The remaining 36 per cent of the respondents feel that the central bank will adopt a cautious approach and may not engage in any further rate cuts in 2016-17.
When asked about the earnings growth recovery witnessed during the fourth quarter of FY16, corporate captains were clearly divided on their views. While (43 per cent) felt that the turnaround in corporate sector earnings in Q4 FY 2015-16 was mainly owing to the increased government spending, 41 per cent of the respondents attributed this recovery to increased consumption demand (private consumption expenditure).
CII noted that the private sector investment continues to crawl and stalled projects remained high in Q1 FY2016-17, as companies continued to postpone new investments on global economic uncertainty, unforthcoming demand, lack of regulatory clearances and inadequate supply of inputs.
In this context, a majority of the respondents (40 per cent) feel that a recovery in the global economy would be helpful in kick starting the private investment cycle. Additionally, 37 per cent of the respondents believe that an upturn in the consumption cycle can also help in boosting private investment.
