th

85 Business
Outlook Survey
October- December 2013
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Confederation of Indian Industry
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Published by Confederation of Indian Industry (CII)
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Contents
th
85 Business Outlook Survey : Oct. - Dec. 2013
Highlights 1
Business Confidence Index 2
General Economic Prospects 3
General Business Prospects 5
Overall Trends 6
Export and Import Trends 9
Business Concerns 10
Coverage & Methodology 10
Indicating sharp improvement in investors sentiments, the CII Business Confidence Index (CII-
BCI) for Oct- Dec 2013 quarter increased sharply to 54.9 from 45.7 in the previous survey.
Breaching the psychological 50-level mark, index reached its highest value since Q2FY13.
Majority of the respondents (42 per cent) felt that GDP growth in the current fiscal would lie in the
range of 4.5-5.0 per cent. Only 28 per cent of them expected it to fall in the range of 5.0-5.5 per
cent.
Inflation is expected to cross 7 per cent mark during the current fiscal, according to largest 41
per cent of the respondents.
The largest 32 per cent of respondents expect fiscal deficit to lie in a range of 4.5-5.0 per cent of
GDP in 2013-14. This would be in line with the governments target of 4.8 per cent for the year
63 per cent of respondents expect current account deficit to lie in a range of 3.5-5.0 per cent of
GDP in 2013-14, which would be above the comfort level of RBI, even though the current
account deficit moderated sharply to 1.2 per cent of GDP in second quarter of the current fiscal.
55 per cent of the respondents expect exchange rate to reach Rs 61-63 per US$ by March 2014.
In a worrying sign of companys performance, 56 per cent of respondents have been running
their companies at less than 75 per cent capacity utilization in the second quarter of the current
fiscal. However, in a sign of improvement in the situation, much smaller (only 45 per cent) per
cent of respondents expect capacity utilization to fall below 75 per cent in the current quarter.
Majority of the respondents (53 per cent) have not planned an increase in capacity expansion
during the third quarter of current fiscal.
The survey reveals that 58 per cent of the respondents expect increase in their sales, new
orders and value of production in the third quarter of 2013-14, which is much larger than only 45
per cent who witnessed increase in their sales in the previous quarter.
Majority of the respondents expect increase in input cost in most cases. As regards the input
cost in the current quarter as compared to the actual of the previous quarter, there is significant
decline in percentage of respondents who expect expenses on raw materials, electricity, and
wages & salaries to increase.
As compared to only 31 per cent respondents who witnessed an increase in their pre-tax profit in
second quarter, 43 per cent respondents expect an increase in the pre-tax profit in the third
quarter of current fiscal.
Majority of respondents (53 per cent) expect their exports to increase in the current quarter.
Only 49 per cent of the respondent had seen increase in their exports during the previous
quarter.
The largest 56 per cent of the respondents didnt expect their imports to increase during the
current quarter.
In the 85th Business Outlook Survey, domestic economic/political instability, slackening
consumer demand, high level of corruption, persistent high inflation and risk from exchange
rate volatility emerged as the top five current concerns in order of severity to most firms.
Highlights
1
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85 Business Outlook Survey : Oct. - Dec. 2013
Business Confidence Index
Indicating sharp improvement in investors sentiments, the CII Business Confidence Index (CII-
BCI) for Oct- Dec 2013 quarter increased sharply to 54.9 from 45.7 in the previous survey.
Breaching the psychological 50-level mark, index reached its highest value since Q2FY13. The
pick-up in BCI for the current quarter comes as a silver lining for the economy, which is otherwise
devoid of any positive news. However, it should also be approached with a bit of cautious
optimism as the downside risks to growth have still not abated from the horizon.
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 current and next quarter. The CII-BCI
is then constructed as a weighted average of the Current Situations Index (CSI) and the
Expectation Index (EI). It is significant to note that both current as well as expectation indices
contributed to the sharp increase in BCI. In both indices, respondents rated the situation to
improve drastically with respect to all constituents - overall economy, sector, and own activity.
2
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85 Business Outlook Survey : Oct. - Dec. 2013
Index
Business Confidence
Index
Current Situation Index
Overall Economy
Own Activity Sector
Own Company
Expectation Index
Overall Economy
Own Activity Sector
Own Company
Q3*
FY11
66.2
64.0
65.0
63.2
64.3
67.3
66.0
66.3
68.4
Q4
FY11
66.7
62.7
59.9
63.0
63.4
68.7
65.6
68.8
69.7
Q1
FY12
62.5
62.6
61.1
61.8
63.7
62.4
61.1
61.1
63.7
Q2
FY12
53.6
52.7
49.2
51.8
54.4
54.0
48.5
53.7
56.1
Q3
FY12
48.6
47.7
44.5
46.0
50.0
49.1
44.2
47.5
51.7
Q4
FY12
52.9
54.7
49.4
46.9
56.3
51.9
48.9
46.9
56.3
Q1
FY13
55.0
51.9
48.9
46.9
56.3
56.5
52.8
53.5
59.7
Q2
FY13
51.3
47.5
36.3
44.6
53.2
53.2
44.6
49.8
58.4
Q3
FY13
49.9
48.6
44.5
45.9
51.7
50.6
47.5
48.1
53.3
Q4
FY13
51.3
47.1
44.2
46.3
48.7
53.4
49.1
52.2
55.7
Quarterly Business Confidence Index (BCI)
* The Survey is conducted on a quarterly basis since the 74th Business Outlook Survey
Q2
FY14
45.7
46.1
35.1
43.9
51.3
45.4
37.0
43.6
49.5
Q1
FY14
51.2
48.7
44.5
46.1
51.7
52.5
49.4
50.6
54.7
Q3
FY14
54.9
51.0
41.6
47.7
56.3
56.8
50.1
54.3
60.7
52.9
55.0
51.3
49.9
51.3 51.2
45.7
54.9
66.2
Q3*
FY11
66.7
Q4
FY11
62.5
Q1
FY12
53.6
Q2
FY12
48.6
Q3
FY12
Q4
FY12
Q1
FY13
Q2
FY13
Q3
FY13
Q4
FY13
Q1
FY14
Q2
FY14
Q3
FY14
Business Confidence Index
General Economic Prospects
Growth & Inflation
GDP expected to decelerate in the range of 4.5-5.0 per cent in 2013-14, while
WPI inflation to lie above 7 per cent
GDP growth is expected to decelerate to a range of 4.5-5 per cent in 2013-14 by 42 per cent of
the respondents, while only 28 per cent expect it to lie between 5.0-5.5 per cent. Further, most of
the respondent firms (41 per cent) expected inflation to lie above 7 per cent for the current fiscal,
which is way higher than the comfort level of RBI.
Expected GDP Growth in 2013-14
(% of Respondents)
The Twin Deficits - Fiscal & Current Account
53 per cent of respondents expect fiscal deficit to lie in a range of 4.5-5.5 per
cent of GDP in 2013-14, while 63 per cent expect current account deficit to lie
in a range of 3.5-5.0 per cent of GDP in 2013-14
At a time when subsidies have escalated sharply and the expenses of government have upside
risk owing to impending Lok Sabha elections in the country, it is comforting to note that the fiscal
deficit in the current year may remain below 5.5 per cent mark, as endorsed by 53 per cent of the
respondents. However, the upside risks to fiscal deficit are also high this year given the fact that
weak economic growth would translate into sluggish tax revenue and the ambitious
disinvestment target would be at risk due to the not-so-favorable market conditions.
3
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85 Business Outlook Survey : Oct. - Dec. 2013
Expected WPI Inflation in 2013-14
(% of Respondents)
6.0 - 6.5%
2%
<4.5%
16%
4.5 - 5.0%
42%
5.0 5.5%
28%
5.5 6.0%
10%
>6.5%
2%
>7.5%
41%
7.0 - 7.5%
21%
6.5 - 7.0%
19%
6.0 - 6.5%
12%
<5.5%
1%
5.5 6.0%
6%
<3.5%
7%
5.0 - 5.5%
17%
>5.5%
13%
3.5 4.0%
21%
4.0 4.5%
20%
4.5 - 5.0%
22%
Even though the current account deficit (CAD) for the second quarter of the current fiscal dipped
to 1.2 per cent of GDP, 63 per cent of respondents expect current account deficit to lie in a range
of 3.5-5.0 per cent of GDP in 2013-14, much above the comfort zone of RBI. In some respite,
only 30 per cent believed that CAD may cross 5 per cent mark.
Expected Current Account Deficit in 2013-14
(% of Respondents)
Exchange Rate
Rupee to remain in the range of 61-63 per US$ by March 2014
55 per cent of the respondents expect exchange rate to remain in the range of Rs 61-63 per US$
by March 2014. Given that US has now announced tapering of its monetary stimulus beginning
next year, this is a positive news. Only 19 per cent feel that exchange rate my cross Rs 63 per
US$ by March 2014.
4
Expected Exchange Rate by March 2014
(% of Respondents)
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85 Business Outlook Survey : Oct. - Dec. 2013
Expected Fiscal Deficit in 2013-14
(% of Respondents)
<4.5%
7%
>6.0%
21%
5.5 6.0%
19%
5.0 5.5%
21%
4.5 - 5.0%
32%
Rs.62-63
30%
Rs.61-62
25%
Rs.60-61
11%
>Rs.63
19%
Rs.59-60
10%
<Rs.59
5%
>100%
2%
50-75%
36%
Below 50%
20%
75-100%
42%
5
General Business Prospects
Capacity Expansion & Capacity Utilization
As compared to 56 per cent respondent firms reporting below 75 per cent
capacity utilization in second quarter, only 45 per cent expect the same for
third quarter
56 per cent of respondents have been running their companies at less than 75 per cent capacity
utilization in the second quarter of the current fiscal. In a sign of improvement in the situation,
much smaller (only 45 per cent) percentage of respondents expect capacity utilization to fall
below 75 per cent in the current quarter. Firms, it appears from the survey, are going slow on
adding capacity at the moment. Majority of the respondents (53 per cent) have not planned an
increase in capacity expansion during the current quarter.
th
85 Business Outlook Survey : Oct. - Dec. 2013
Capacity Expansion during July-Sep, 2013
(% of Respondents)
Capacity Expansion during Oct-Dec, 2013
(% of Respondents)
Change in Spending on Capacity Expansion during Oct-Dec over July-Sep, 2013
(% of Respondents)
75-100%
51%
Below 50%
13%
50-75%
32%
>100%
4%
Decrease
15%
No Change
53%
Increase
32%
6
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85 Business Outlook Survey : Oct. - Dec. 2013
Investment Plans
Majority of respondents expect either no change/decline in their domestic
and international investment plans in 3QFY14
According to the survey, majority of the respondents (54 per cent) expect their domestic
investments to show either a decline or no change in the Oct-December 2013 quarter. Mirroring
this, nearly of half of the respondents (47 per cent) expect their international investments to
either decline or show no change in the third quarter of 2013-14.
Investment Plans for Oct-Dec, 2013 - Domestic
(% of Respondents)
Investment Plans for Oct-Dec, 2013 International
(% of Respondents)
Not Applicable
5%
>20%
Increase
6%
0-10%
Increase
25%
Decline or
no change
54%
10-20%
Increase
10%
>20%
Increase
4%
Not
Applicable
18%
Decline or
no change
47%
10-20%
Increase
11%
0-10%
Increase
20%
Overall Trends
Overall Sales & New Orders
A surge in new orders may push sales
The survey reveals that 58 per cent of the respondents expect increase in their sales, new
orders and value of production in the third quarter of 2013-14, which is much larger than only 45
per cent who witnessed increase in their sales in the previous quarter. This is indeed a healthy
sign for the economy and bodes well for the growth prospects. It is significant to note that the
percentage of respondents reporting increase in new orders and value of production has
increased significantly between the second and third quarter, while the same for inventories
declined.
7
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85 Business Outlook Survey : Oct. - Dec. 2013
Overall Sales & New orders in July-Sep, 2013
(% of Respondents)
Overall Sales & New orders in Oct-Dec, 2013
(% of Respondents)
Decrease
27%
No Change
28%
Increase
45%
Increase
No Change
Decrease
Increase
58%
No Change
28%
Decrease
14%
Trends in output indicators: Actual (July-Sep) vs. Expected (Oct-Dec), 2013
(% of Respondents)
40
55
39
51
33
31
40
31
40
37
52
45
20.2
14.1
20.9
12.3
14.9
24.0
New Orders
(July - Sep)
New Orders
(Oct - Dec)
Value of
Production
(July - Sep)
Value of
Production
(Oct - Dec)
Inventories
(July - Sep)
Inventories
(Oct - Dec)
Increase No Change Decrease
Expenditure
Majority expect increase in input cost in third quarter even though this
number has fallen from the last quarter
As regards the input cost in the current quarter as compared to the previous quarter, there is a
significant decline in the percentage of respondents who expect expenses on raw materials,
electricity, and wages & salaries to increase. However, majority of the respondents expect
increase in other input costs during the current quarter.
Increase No Change Decrease
8
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85 Business Outlook Survey : Oct. - Dec. 2013
Input Costs
(% of Respondents)
62
55
66
45
47
38
45 45
35
37
32
48
51
62
54 55
3.4
8.2
1.3
6.5
1.9
0.0
0.7 0.7
Raw Materials
Cost (Actual)
Raw Materials
Cost (Exp)
Electricity
Cost (Actual)
Wages &
Salaries (Exp)
Cost of
credit (Actual)
Cost of
credit (Exp)
Wages &
Salaries (Actual)
Electricity
Cost (Exp)
Pre-tax Profits
Majority expect an increase in profits
Majority of the respondents (43 per cent) expect an increase in their per-tax profit margin in the
third quarter and this marks a sharp increase of 31 per cent in the last quarter. This may be
attributed to expectation of a sharp increase in sales and moderation in input costs.
31
32
37
43
32
26
Increase No Change Decrease
Pre-Tax Profits (Actual) Pre-Tax Profits (Expected)
Pre-tax Profits
(% of Respondents)
Export and Import Trends
Majority expect an increase in export orders and stagnancy in imports
Majority of respondents (53 per cent) expect their exports to increase in the third quarter of the
current fiscal. Only 49 per cent of the respondent had seen increase in their exports during the
previous quarter. Exports are likely to find some support amidst economic recovery in both the
US and the Euro Zone. Besides, a weaker Rupee is also likely to aid exports.
The largest 56 per cent of the respondents didnt expect their imports to increase during the
current quarter. Only 23 per cent said that they might witness an increase in imports in the third
quarter. This is positive news as it is expected to keep the current account deficit in check.
9
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85 Business Outlook Survey : Oct. - Dec. 2013
49
35
15
53
39
8
Increase No Change Decrease
Actual Expected
Export Volume
(% of Respondents)
Import Volume
(% of Respondents)
18
57
24
23
56
21
Increase No Change Decrease
Actual Expected
10
Business Concerns
Domestic economic/political instability, slackening consumer demand,
high level of corruption, persistent inflation and risk from exchange rate
volatility are the top current business concerns
th
In the 85 Business Outlook Survey, domestic economic/political instability, slackening
consumer demand, high level of corruption, persistent high inflation and risk from exchange rate
volatility emerged as the top five concerns in order of severity to most firms.
Coverage & Methodology
CIIs 85th Business Outlook Survey is based on sample survey of firms covering all industry
sectors, including micro, small, medium and large enterprises from different regions. The
survey also enumerated responses across industry groups both in public and private sectors
engaged in manufacturing and services sector.
The survey was conducted from October-December 2013, covering 174 firm of varying sizes.
Majority of the respondents (63.2 per cent) belonged to large-scale firms, while 12.1 per cent
were from medium-scale firms and 24.7 were from small-scale firms. Sectoral break up shows
that 65 per cent of the respondents were from manufacturing sector while 35 per cent were
from services sector, respectively.
CII-BCI is calculated as a weighted average of the Current Situation Index (CSI) and the
Expectation Index (EI), with greater weight given to EI as compared to CSI. These indices are
based on questions pertaining to performance of the economy and respondents firm.
Respondents are asked to rate the current and expected performance on a scale of 0 to 100. A
score above 50 indicates positive confidence while a score above 75 would indicate strong
positive confidence. On the contrary, a score of less than 50 indicates a weak confidence
index.
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85 Business Outlook Survey : Oct. - Dec. 2013
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