Ficci business-confidence-survey

Business Confidence Survey

September 2013

Economic Affairs and Research Division


Survey Highlights

The results of latest round of FICCI’s Business Confidence Survey conducted reports significant

moderation in the performance of the companies vis-à-vis last two quarters. With regard to the

current overall economic situation relative to last six months, a majority 65% of the respondents

cited a ‘moderately to substantially’ worse performance.

Further, expectation of the participants with regard to near term outlook was not buoyant.

Survey results pertaining to operational parameters were disappointing too. The near term

outlook of respondents with regard to sales, profits and investments remained subdued. The

outlook with regard to exports and employment was muted as well.

The business sentiment has been hit adversely and investment prospects don’t seem very

promising. A sense of apprehension continues to grip members of India Inc.

The value of Overall Business Confidence Index declined to 49.0 in the current survey round. The

corresponding figure in last survey was 57.4 and 51.8 a year back. This is the lowest in about 17

quarters and is somewhat reminiscent of the situation in 2008-09.

Weak demand which was reported to be a key issue constraining growth in the last survey by

members of India Inc persists to be a bothering factor. Also a substantial increase was noted in the

proportion of respondents citing availability and cost of credit as concerns.

In the present survey 38% of the respondents said that availability of credit is an issue, this is

almost double the percentage of participants citing likewise in the last survey. Also, high cost of

credit was reported to be a concern by 72% of the participating companies. The corresponding

number in previous survey round was 57%.

The present average interest rate being paid by companies with a turnover of less than 500 crore

on working capital loan was reported at 13.40%, while on term loan the rate was 12.48%. For

companies with a turnover more than 500 crore, the average interest rate being paid on working

capital loan was 11.41% and on term loan was 11.52%.

Further, respondents indicated that they would be comfortable paying an average interest rate

of 9.4% on working capital loan and 8.9% on term loan.

The participants were also asked to suggest measures to revive flagging industrial growth. A

good number of respondents felt that improving basic infrastructure with emphasis on quality has

to be ensured. Investment in infra projects that are stalled has to be expedited. Also, it was

unanimously reported that simplification of procedures and policies in commencing and

conducting businesses will enable better confidence. Implementation of Goods and Services Tax

and cut in interest rate by the RBI were given as other suggestions.



Survey Profile

The current survey round drew responses from companies with a wide sectoral and geographical

spread. The survey drew responses from about 200 companies with a turnover ranging from 90

lakh to 1.35 lakh crore. The participating companies belonged to a varied array of sectors such as

textiles, cement, financial services, hospitality, chemicals, metal and metal products, automobiles,

FMCG, electrical equipment and machinery, paper and paper products. The survey was conducted

during July 2013 and August 2013 and brings out expectations of the corporate members for the

period July 2013 to December 2013.

75%

25%

Sectoral Distribution of Participating Companies

Manufacturing Services

57%

43%

Turnover in Rs crore

Less than 500 Over 500

39%

61%

Number of Employees

less than 250 More than 250



Detailed Survey Findings

Performance at Economy, Industry and Firm Level

The results for the latest round of FICCI’s Business Confidence Survey reports significant

moderation in the performance of the companies vis-à-vis last two quarters. The expectations of the

participants also seem to have taken a beating.

With regard to the current overall economic situation relative to the last six months, only 14% of

the respondents cited a ‘moderately to substantially’ better performance. This was the fourth

consecutive quarter of decline. The proportion of respondents reporting likewise in the previous

round was 36%. A majority 65% of the participants indicated that situation is ‘moderately to

substantially worse’ vis-à-vis last two quarters.

A similar view was shared at the industry and firm level. At the industry level, about of half of the

participating companies said that the situation has worsened vis-à-vis last two quarters. At the firm

level about 29% participants reported likewise.

This trend is further corroborated by the recently released macro data. The Q1 FY14 GDP numbers

reported a growth of 4.4%, which is the lowest in almost four years. The manufacturing sector

growth and investment numbers continue to languish.

Prospects over next two quarters

Note: Net responses are measured as the differential between the companies reporting positive and negative responses.

Responses indicating status quo are not reckoned.

Amidst this situation the near term outlook of members of India Inc seems to have a taken a severe

hit as well. The proportion of participants citing worsening over July and December 2013 witnessed

an increase at all the three levels- economy, industry and firm level.

Prospects for the next six months

Net Response

Q1 FY14

Q4 FY13

Q3 FY13

Q2 FY13

Expected Economic Situation

Worse -8 32 42 32

Expected Industry Situation

Worse -6 34 55 44

Expected Firm Level Situation

Worse 27 46 56 51



Nevertheless, results indicate that expectation of moderation over the coming six months was more

pronounced at the economy and industry level.

At the economy level, 21% of the respondents expected an improvement in the overall condition

over the next two quarters, relative to 49% participants reporting likewise in the last survey round.

Further, about 50% of the participants expected no change in the overall economic situation. At the

industry level also 21% of the respondents cited an improvement in near term (vis-a-vis 33%

stating likewise in the last survey round), while about half of the participants anticipated a

worsening. At the firm level, 42% of the respondents indicated that they feel the performance

would improve going ahead, while 15% said that they expect the situation to deteriorate.

Operational Parameters

Survey results pertaining to the operational parameters are also not so positive. The outlook of the

respondents with regard to sales, profits and investments remained subdued for next two quarters.

Further, a majority of the participants cited no change in the selling prices in near term. In addition,

the outlook with regard to exports and employment was muted as well.

-40

-20

0

20

40

60

80

100

Q1

(200

4-05

)

Q4

(200

4-05

)

Q3

(200

5-06

)

Q2

(200

6-07

)

Q1

(200

7-08

)

Q4

(200

7-08

)

Q3

(200

8-09

)

Q2

(200

9-10

)

Q1

(201

0-11

)

Q4

(201

0-11

)

Q3

(201

1-12

)

Q2

(201

2-13

)

Q1

(201

3-14

)

Sales-Net Respondents

The outlook of the participating companies with

regard to near term sales prospects was not

very sanguine. A little over 50% of the

respondents anticipated no change in the sales

volume over the next two quarters. The

corresponding figure in the last quarter was

40% and a year back was 38%.

-60

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40

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4)

Profits - Net Respondents

With the anticipated decline in sales volume,

the expectation of the participating companies

with regard to profits has clearly taken a

beating. About 40% respondents said that they

expect profits to be lower in near term. In fact,

another 43% participants said that they don’t

see any change in profit levels over the next six

months. Only 17% companies expected profits

to be higher going ahead.



-60

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(2

00

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Investments-Net Respondents

-60

-40

-20

0

20

40

60

80

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(2

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(2

00

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4)

Exports - Net Respondents

-40

-30

-20

-10

0

10

20

30

40

50

Q1

(2

00

4-0

5)

Q3

(2

00

4-0

5)

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4)

Employment-Net Resondents

The investment outlook of companies has

deteriorated significantly and this is a

major cause for concern. Around 51% of

the participating companies in the survey

said that they see no change in investment

levels over the next two quarters. Further

though about 21% respondents (vis-a-vis

37% in last survey round) indicated that

they would undertake new investments in

near term, about 29% (vis-a-vis 17% in last

survey round) anticipated a decline.

Though the latest export data for the month

of July 2013 indicated some recovery and

the imports did witness a fall with

government imposing curbs on gold,

however the outlook for exports for the next

six months doesn’t look very optimistic. The

global situation continues to be fragile.

56% of the participants said that they see no

change in the export volume over the next

two quarters. Further, 23% respondents

indicated higher exports in near term, vis-a-

vis 32% saying likewise in last round.

Amidst this scenario, the employment

outlook of the companies doesn’t seem

very promising in the coming six months.

Only 12% of the respondents said that

they foresee hiring more people in the

next two quarters. The corresponding

number in the last survey round was 20%.

Further, 67% participating companies

said that they don’t intend any further

recruitments over the next six months.



Overall Business Confidence Survey

The current condition index dropped to 43.6 in Q1 FY14 from 50.7 in Q4 FY13. A year back the

corresponding figure was 45.7. The fall in the value of current condition index, which captures the

performance at the economy, industry and firm level, clearly indicates that situation has

deteriorated noticeably.

The Expectation Index stood at 51.7 in Q1 FY14, vis-a-vis 60.8 in Q4 FY13 and 54.8 in Q1 FY13.

As a result, the value of Overall Business Confidence Index declined to 49.0 in Q1 FY14. The

corresponding figure in Q4 FY13 was 57.4 and 51.8 a year back. This is the lowest in about 18

quarters and is somewhat reminiscent of the situation in 2008-09.

The business sentiment has been adversely affected and the investment scenario doesn’t seem very

promising. Though the present economic situation continues to remain weak, with no definite signs

of recovery, it is extremely important that we continue with our efforts to kick start the capex cycle.

The sharp swing in Rupee value has added to this already uncertain environment and has raised

fresh concerns over sustainability of our current account deficit. The government has been in

caution mode and announced measures which have had some positive impact on the Rupee value.



Constraining Factors

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Factor Constraining Growth

Q1 FY14

Q4 FY13

Weak Demand

Though there was a marginal decline in the proportion of respondents citing weak demand to be a

worrying factor, yet a majority 70% reported that it is still a concern. The participating companies

reported that their current order book position vis-a-vis last six months has taken a hit and the near

term expectations weren’t too robust either.

22

40 38

24

48

28

0

10

20

30

40

50

60

Better Same Worse

Current Order Book position vis-a-vis last six months

Present Survey Last Survey

36

53

12

4644

11

0

10

20

30

40

50

60

Better Same Worse

Expected Order book position over next six months

Present Survey Last Survey

Weak demand was said to be a key issue

constraining growth in last survey and

was once again reported to be a

bothering factor. Also a substantial

increase was noted in the proportion of

respondents citing availability and cost

of credit as concerns.

In the present survey round we also

asked participants to indicate if they are

facing any labor problems related to cost

of labor and skilled labor. 71% of the

participants affirmed they are having

labor issues pertaining to cost and skills.

While 75% said that rising costs of

manpower was an issue, only about 39%

said that availability of skilled labor was

a problem.



In the current survey round, only about 22% of the participating companies said that there current

order book position is better vis-a-vis last six months. Further, 38% said that their order book

position is worse relative to the past two quarters. This was an increase of almost 10 percentage

points compared to 28% participants reporting likewise in the last survey round.

With regard to the expectations over the next two quarters, 36% participants felt that their order

book position would be better, vis-a-vis 46% saying likewise in the previous survey round. A little

more than 50% of the participants expected no change in the order book position in near term.

Credit Availability and Costs

Results of the latest survey round once again indicates availability and cost of credit have emerged

as problem areas for companies. In the present survey 38% of the respondents said that availability

of credit is an issue, this is almost double the percentage of participants citing likewise in previous

survey round. Also, high cost of credit was reported to be a concern by 72% of the participating

companies. The corresponding number in the last survey round was 57%.

Recent measures announced by RBI to tame Rupee has affected the liquidity situation and

companies are finding it increasingly difficult to borrow funds. Also, the lending rates continue to

remain high despite the Central Bank cutting policy rates beginning of the year.

Average interest rate charged by the banks on working capital and term loan

Working Capita Loan Term Loan

At present Six months

back

One year back

At present Six months

back

One year back

Turnover up to 500 cr

13.40 13.19 13.19 12.48 11.23 11.16

Turnover over over 500 cr

11.41 11.06 11.12 11.52 11.48 11.39

The above table clearly indicates that the average interest being charged by banks has in fact gone

up marginally over past one year.

The companies were also asked to indicate the interest rate they would be comfortable paying

given the current situation. It was indicated that an average interest rate of 9.4% on working capital

loan and 8.9% on term loan would be ideal.

Measures suggested for reviving industrial growth

Improving basic infrastructure has to be the focus and emphasis should be laid on quality.

Investment in infra projects that are stalled has to be expedited. The Cabinet Committee on



Investments (CCI) has been speaking on such clearances and the process of actual implementation

will have to be accelerated.

Non-availability of uninterrupted quality power supply was reported to be a concern by a large

number of respondents. There is an urgent need to undertake energy reforms. The country is

energy and electricity deficient and thus requires a road map of achieving energy security with cost

affordability.

Simplification of procedures and policies in commencing and conducting the business will

enable better confidence. There is an urgent need to improve regulatory framework for businesses.

Government should resolve the deadlock in iron ore sector and the coal sector.

Implement Goods and Services Tax at earliest. The Goods and Services Tax can be a game

changer for the industry and exporters and is expected to add 2 percentage points to the GDP.

Kick start demand which can be supplemented by monetary policy easing.

Fiscal deficit has to be controlled facilitating better fund flow management. We should

immediately look at ways of reducing subsidies.

Impact of Rupee Depreciation

The respondents indicated that sharp fall in the rupee value has affected their input costs, which

in turn has lowered their profitability. Both capital and operation costs have been impacted. The

participating companies said that they are in a fix as they cannot even pass the cost to the

consumers.



Annexure - Survey at a Glance

FICCI BCS Q3 2011-12







1a

Current overall economic conditions vis-à-vis the last six months

Moderately to Substantially better

34 38 7 44 45 36 14

Same / No change

29 43 19 32 34 32 21

Moderately to Substantially worse

38 19 74 24 20 32 65

1b

Expectations for overall economic conditions for the next six months


39 49 22 48 52 49 21

Same / No change

37 38 44 36 38 34 50


25 13 34 16 10 17 29

2a

Current industry performance vis-à-vis the last six months


36 47 26 32 34 33 21

Same / No change

35 34 33 44 38 31 29


29 19 41 24 28 35 50

2b

Expectations for industry performance in the next six months


46 55 41 52 58 46 26

Same / No change

32 30 37 40 38 42 42




22 15 22 8 3 12 32

3a

Current firm level performance vis-à-vis the last six months


48

47

36

46

38

32

27

Same / No change

33 30 28 38 41 47 44


19 23 36 17 21 21 29

3b

Expectations regarding firm level performance in the next six months


59 56 46 59 59 58 42

Same / No change

25 34 35 33 38 30 43


17 11 19 8 3 12 15 4 Confidence Indices

Current Conditions Index

55.0 57.4 45.7 57.9 54.0 50.7 43.6

Expectations Index

59.0 61.7 54.8 64.6 65.0 60.8 51.7

Overall Business Confidence Index

58.0 60.3 51.8 62.4 61.2 57.4 49.0 5 Problem areas

Weak Demand

Yes 45 57 73 71 75 73 70

No 55 43 27 29 25 27 30

Threat of imports

Yes 27 17 16 39 15 28 35

No 73 83 84 61 85 72 65

Constrained availability of credit

Yes 20 23 24 33 29 19 38

No 80 77 76 67 71 81 62

High cost of credit

Yes 50 47 60 58 52 57 72

No 42 53 40 42 48 43 28

Rising raw material prices

Yes 81 79 62 50 66 66 69

No 19 21 38 50 34 34 31

6 Present capacity



utilization

Less than 25% 2 7 0 8 4 3 8

Between 25% and 50% 8 13 21 4 11 13 12

Between 50% and 75% 31 38 46 50 48 37 39

More than 75% 60 42 33 38 37 47 41

7 Prospects for the next six months

Investments

Much higher 6 7 4 9 0 7 2

Higher 39 34 29 36 21 30 19

Same / No change 39 48 42 32 46 47 51

Lower 16 11 25 23 33 17 29

Sales

Much higher 6 13 0 13 7 1 2

Higher 53 53 50 30 41 45 37

Same / No change 31 21 38 35 44 40 53

Lower 10 13 12 22 7 15 8

Selling price


Higher 29 26 16 17 20 19 11

Same / No change 57 52 72 43 64 56 67

Lower 14 22 8 39 16 24 21

Profit


Higher 27 36 32 35 35 25 17

Same / No change 43 29 36 30 35 38 43

Lower 30 33 32 35 31 36 40

Exports


Higher 40 30 33 22 13 29 19

Same / No change 42 46 43 50 52 40 56

Lower 17 16 19 22 30 28 22

Employment


Higher 29 30 16 18 16 19 12

Same / No change 62 61 64 59 72 65 67

Lower 8 9 20 23 12 14 22

Ficci business-confidence-survey

Economy & Finance

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