12/08/2015 3:14 PM IST | Updated 15/07/2016 8:25 AM IST

NCAER Survey Shows India Business Sentiment Sinks To Yearly Low

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Stressed man sitting on a stack of sacks in warehouse, Anaj Mandi, Sohna, Gurgaon, Haryana, India

Mirroring a steady erosion of faith in the Narendra Modi government's ability to invigorate the economy, a leading economic policy think tank says that business sentiment in India fell sharply in the first quarter of the current fiscal. While previous editions of the survey have also noted the decline over the year, the latest findings show a steeper decline led by smaller companies.

The monsoon session of parliament, which will end on Thursday, has been a washout. Key legislation, such as the Land Acquisition Bill and the GST Bill, are on hold or stymied by the opposition. Industry leaders have signed an online petition imploring parliaments to cease agitating and deliberate on these bills.

According to the National Centre for Applied Economic Research, the Business Confidence Index (BCI) decreased by 11.9 per cent over the previous quarter on a quarter-on-quarter basis and by 15.1 per cent on a year-on-year basis.

Most sub-components of BCI showed negative change. Confidence among the manufacturers showed a double-digit decline in all four sectors – consumer durables, non-durables, intermediate and capital goods - with consumer durables dipping the most. The services sector was slightly better with a marginal improvement of 2.6 percentage points.

When business sentiment was disaggregated across the country, confidence of businesses in the Western region rose 6.3 percentage points, while those in the South fell 24.5 percentage points. The decline in the Northern and Eastern regions were by 9.6 and 7.2 percentage points, respectively, with sentiments particularly low in the East.

"The decline of business sentiments specially related to the investment climate is particularly worrisome," said Bornali Bhandari in a press statement, "because this may be perceived as a signal for lower future investment and thereby for economic growth."

As per the survey, the services sector showed a marginal improvement in the BCI (2.6 per cent).

The manufacturing sector showed double digit decline in all four sectors - consumer durables, non-durables, intermediates and capital goods.

The fall in BCI for consumer durables was the steepest.

The survey further said the Political Confidence Index (PCI) continued its slide downwards from last quarter.

"The PCI fell by as much as 17.7 per cent over the last quarter on a q-o-q basis and 16.2 per cent on a y-o-y basis. All components of PCI show a deteriorating trend," it said.

NCAER has been conducting Business Expectations Survey (BES) every quarter since 1991.

It tracks the business sentiments of over 500 Indian companies to compute the composite, Business Confidence Index.

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