Business sentiment at a new low: What FICCI survey shows

The overall business confidence index as measured by FICCI nosedived to 51.5 in May from a decadal high of 74.2 measured in February. Why are businesses losing confidence?

The demand outlook for India Inc has worsened as 70 per cent of businesses saw weak demand as a key cause behind worse business prospects up from 56 per cent in the previous survey. (File photo)

Business sentiment in India has taken a beating in May, with 70 per cent of businesses citing a weak demand situation as a key containing factor for business, according to a survey by industry body FICCI.

The overall business confidence index as measured by FICCI nosedived to 51.5 in May from a decadal high of 74.2 measured in February.

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Ahead of the announcement of GDP growth numbers for the December-March quarter and FY 21 on Monday (May 31) here’s how the second surge of coronavirus infections contributed to business confidence touching a low ebb.

Why are businesses losing confidence?

A low demand scenario led to 47 per cent of businesses projecting lower profits in the upcoming six months and 37 per cent of businesses projecting similar profits as the previous six months.

Businesses are also expecting a stagnation in exports, with 73 per cent of businesses expecting similar or lower exports in the next six months and only 27 per cent expecting an increase in exports compared to 41 per cent that saw exports rising in the previous survey.

The demand outlook for India Inc. has worsened, as 70 per cent of businesses saw weak demand as a key cause behind worse business prospects, up from 56 per cent in the previous survey.

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Lower optimism about profits also translated to muted hiring plans, with only 19 per cent of businesses foreseeing hiring prospects in the coming two quarters.

What are factors holding back business growth?

Besides a low-demand scenario, an increasing number of businesses saw the availability of credit and the cost of raw materials as a major concern. 34 per cent of respondents saw the availability of credit as a key concern, up from 31 per cent in the previous survey.

The rising cost of raw materials is hitting profitability, according to the FICCI report. Sixty-five per cent of respondents cited the high cost of raw material as a constraining factor for business growth, up from 59 per cent in the previous survey.

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There was a significant increase in the number of businesses reporting worse conditions in the economy, industry, and their firms in the latest FICCI survey with the number of respondents reporting worsening conditions for their firms rising to 28 per cent in May from 16 per cent in February.

An even larger number of respondents — 41 per cent — considered conditions in their particular industry to be worsening, up from 10 per cent in the previous survey.