Call for Govt support-handholding during the crisis
Business sentiment has bounced back as the economy and business activity has resumed but a call has been made for the Government handholding.
“It is heartening to note the recovery in CII’s Business Confidence Index for the July-September quarter indicating an improvement in business conditions during the period,” said CII Director General Chandrajit Banerjee. Following a recent CII Business Outlook Survey.
“However, while recovery is underway, it could be tremendously expedited through continued government support and handholding of businesses during this crisis,” he said in comments on 19 Sept 2020.
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.
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 July-September quarter.
The Current Situation Index (CSI), however, continued to trail below 50, at 40.6, depicting weak confidence during April-June 2020, a period marked with stringent lockdown measures and complete shutdown of business operations.
More than 150 companies across all industry sectors, including micro, small, medium and large enterprises from different regions, participated in the survey conducted during August-September 2020.
The results for the July-September quarter signal green shoots of recovery as nearly half of the respondents anticipate an increase in new orders (49%) and sales (46%) 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%) foresee higher utilization levels of 50-75% in the July-September quarter, closely followed by 37% 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%) experienced this in the preceding quarter.
As businesses still struggle to recover from the pandemic, more than half of the respondents (51%) 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% 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%).
Effectively, a large share of respondents (37%) 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%) 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%) 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%) 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 the 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. #economy #manufacturing #exports /fiinews.com
