CII Business Confidence Index Shoots Up Second Time in a Row

Indicating a sharp improvement for the second consecutive quarter, the CII Business Confidence Index (CII-BCI) for July-Sept quarter FY15 has shot up to 57.4, up from 53.7 in April-June quarter and 49.9 in Jan-March quarter this year. During the same quarter last fiscal, the index had touched the all-time low value of 45.7. The number 50 is the dividing line on the index between positive and weak business confidence.

Commenting on the upward march in the value of index, Mr. Chandrajit Banerjee, Director General, CII, said that “the determination shown by the new government at the Center to provide an impetus to growth along with reviving the ‘feel good’ factor has sent the business confidence index soaring for the second quarter in a row. In order to capitalize on the early signs of improving business sentiments, we must ensure that this momentum is maintained going forward.”

The 88th Business Outlook Survey is based on responses from over 150 industry members. Majority of the respondents (44 per cent) belong to large-scale sector, while medium scale companies comprise another 12 per cent. Around 38 per cent and 6 per cent respectively are from the small-scale and micro firms. Further, 60 per cent of the respondents are from manufacturing and 36 per cent are from the services sector.

The highest percentage (41 per cent) of respondents expected GDP in the current fiscal to expand by 5.0-5.5 per cent, up from sub-5 per cent growth witnessed in the last two years. In fact, 30 per cent respondents expected GDP to grow in a range of 5.5-6.0 per cent in FY15, which indicates that 6 per cent growth is within reach this year. We have already started this financial year on an impressive note with the first quarter GDP recording a growth of 5.7 per cent, up from 4.6 per cent in the previous quarter.

WPI Inflation is expected to average 5.5-6.5 per cent in FY15, which is slightly on a higher side considering the likelihood of a sub-normal monsoon this year. “The management of inflationary expectations through supply-side measures would hold the key for ensuring continued momentum of economic revival”, suggested Mr. Banerjee.

The expectation of higher economic growth in the current fiscal is rooted in optimism about the overall demand situation. A significant 77 per cent of the respondents expected their sales to increase in the July-Sep quarter, much higher than 50 per cent respondents in the previous quarter. Similarly, 49 per cent of the respondents expected their export orders to increase in July-Sep quarter compared to 39 per cent respondents in the previous quarter.

The revival in domestic and global demand has resulted in a majority (46 per cent) of the surveyed businesses contemplating new investment in the July-Sep quarter, whereas only 10 per cent expected contraction. This indicates that economic recovery is sustainable, provided we maintain the demand momentum, where the monetary stance by the Central Bank will play a crucial role.

The businesses, besides undertaking new investments, have started experiencing a rise in capacity utilization. Nearly half (49.5 per cent) of the respondent firms expected their capacity utilization to exceed 75 per cent in July-Sep quarter of FY15, up from 34 per cent respondents in the previous quarter, which augurs well for the turnaround of the economy.

CII survey has observed a sharp decline in the percentage of respondents reporting increase in inputs costs related to raw materials, energy and employees in the Jul-Sep quarter as compared to the previous quarter, which is in line with the official data specifying the current moderation in inflation rate.

Expectation of recovery in sales, coupled with sharp decline in input costs, has led to a rise in percentage of respondents expecting an increase in profits after tax (PAT) in the July-Sept quarter to 40 per cent as against 36 per cent in the previous quarter. On the other hand, the percentage of respondents reporting a decline in PAT between the two periods declined from 30 per cent to 20 per cent.

A slow pick up in global demand, high inflation and rising borrowing costs are cited to be the top three concerns of the respondents. “While we can do little about addressing the global slowdown concern, all policy options must be explored to tackle the problem of inflation and high borrowing cost. At a time when economic recovery needs to be strengthened, the ideal policy instrument would be to manage inflation through supply-side measures, and make a direct intervention to reduce borrowing costs”, added Mr. Banerjee.

Union Budget Should Create an Enabling Environment and Revive Growth: CII

 

 

Fine Balance Required Between Fiscal Prudence and Stimulating Growth

In the pre-budget consultation meeting with the Ministry of Finance, CII has strongly urged for early implementation of GST as a surefire means of lifting investor sentiment and putting the Indian economy back on track. It is important to ensure that the Constitution Amendment Bill does not have the sectoral exemptions built into it. In terms of stimulus, nothing can be better than a well-crafted GST, according to the CII press release issued here today.

Elaborating further on the proposals to facilitate growth and investor confidence, CII stressed on meeting the fiscal deficit target and mentioned that a road map for adhering to the fiscal deficit target should be drawn up and announced in the Budget.

Commenting on the need for maintaining fiscal discipline, Mr Chandrajit Banerjee, Director General, CII, said ‘fiscal consolidation is an important constituent of the reform agenda and imperative to maintain India’s image as a stable investment destination. Hence, it would be important for the government to spell out a strategy for revival of growth while maintaining fiscal prudence’.

CII has, further, suggested the extension of short-term stimulus package involving reduction of excise duty on certain goods up to 31^st March 2015. In the interim budget presented on 17^th February 2014, this reduction in the range of 2-6 per cent was provided up to 30^th June 2014. CII has also urged the government to bring down the general rate of excise duty from the current level of 12 per cent to 10 per cent across the board to revive demand in the economy.

Commenting on stimulus package, Mr Banerjee said that ‘the time is not right to do away with the stimulus especially as the economy is in the midst of a slowdown and the manufacturing sector growth is in the red. At the present moment, it is a tough balancing act, since the industry would need fiscal support for some time to come out of negative territory’.

CII underscored the importance of augmenting revenue by creative interventions which would provide fiscal maneuverability to incur expenditure. CII has suggested that a 10% rationalization of subsidy expenditure, could result in savings to the tune of Rs. 25,000 crore. A holding company structure model for PSU Banks, diluting government stake in public sector banks to 51% and aggressively pursuing disinvestment were among some other suggestions for revenue generation by CII.  

According to CII, the priority is torevitalize demand by fast-tracking project clearance. CII has sought reducing the threshold limit of CCI clearance from the current level of Rs. 1000 crore to Rs 500 crore.

CII has strongly advocated the promotion of manufacturing as one of the priorities to kick start the flagging economy. Manufacturing requires sustained investment but equally enhances employment generation. Investment allowance as a concept provides an incentive for capital formation in the manufacturing space. With some modifications, its thrust and scope can be amplified.

CII has further recommended tax incentives such as allowing 25% accelerated depreciation for investments in plant and machinery, reducing MAT rate and dividend distribution tax to 10%, among others.

During the meeting, CII cautioned that financing investments could be a challenge, since financial savings are on the decline. To incentivize savings, we need to increase disposable incomes of households by raising the basic exemption limit and removing surcharges.  CII also mentioned that the Central government should reduce its dissaving by lowering revenue deficit through reduction in subsidies and other revenue expenditure. The other way to find money would be to raise FDI limits in sectors like insurance, defence, etc.  

CII maintained that a large part of investor sentiments are determined by ease of doing business in India, where India is ranked at 134 out of 189 countries. It has submitted that the government should bring a tax regime which is simple, stable and non-adversarial. Issues like doing away with retrospective amendments, further deferring GAAR, abolition of MAT on infrastructure and SEZs, improving the dispute resolution mechanism by designating it as a quasi judicial body and providing a timeline for implementation of reforms in tax administration would restore India as an attractive destination for doing business, according to CII’s pre-budget proposals.

Mr Banerjee reiterated that ‘Slowing economic growth, escalated fiscal deficit and high food inflation have been causing a downtrend in investment and consumer demand, leading to vicious circle. We must find ways to break this cycle, which can largely be addressed by providing a thrust to reforms unshackling the supply bottlenecks that exist in the system. The Union Budget 2014-15, with a government enjoying an overwhelming majority in the parliament, provides an opportunity to do this even while moving on path of fiscal consolidation’.

CII Proposes 100-Day Agenda for New Government

Unveiling the CII action theme for the year as ‘Accelerating Growth, Creating Employment’, Mr Shriram noted, “With slowing growth and high inflation adversely impacting employment, CII will urge the nextGovernment to focus on reviving growth and generating new jobs.”

In his press conference, Mr Shriram added that CII has proposed a strong 100-day action agenda for the new governmentto boost growth. “A strong economic revival package and right implementation of policies by a fresh Government can help create as many as 150 million jobs in the next ten years,” he stressed. “Industry is looking for top policy steps such as introduction of GST, easing of interest rates by 100 bps, keeping subsidies at 1.7 per cent of GDP, and restructuring of labour laws to promote mass manufacturing.”

CII further stated thatwithcontinuing robust reforms, GDP growth could be taken back to the 8 per cent level in the next three years. “Amarket-friendly environment is required that would proactively promote investments, business and entrepreneurship,” said Mr Shriram. Mass manufacturing sectors and labour-intensive services sectors need to be encouraged, he continued.

Key priorities for CII in the coming year will be in the following ten areas: education, skills, economic growth, manufacturing sector growth, investments, ease of doing business, export competitiveness, legal and regulatory architecture, labour law reforms and entrepreneurship.

CII has strongly called for implementation of the following policies, among others, in the first 100 days by the next Government:

–          Introduction of GST

–          Containment of subsidies and fiscal consolidation

–          Monetary easing – reduction in the repo rate by 100 bps

–          Maintenance of a competitive exchange rate

–          Fast-tracking stalled projects and increasing public capital investments

–          Timely implementation of DMIC and NIMZs

–          Setting up of state level mechanisms similar to Project Monitoring Group which will review and monitor projects at state level

–          A strong inter- Ministerial co-ordination group to resolve sticky issues like mining, raw material securitisation for sectors like Steel, etc

–          An institutional mechanism to renegotiate the terms of concession in Public Private Partnership Contracts to salvage stranded investments

–          Expansion of e-governance & technology based initiatives to simplify processes and online monitoring of application forms

–          Time-bound approvals by introducing ‘deemed approvals’ in case of delays beyond prescribed limit

–          Restructuring labour laws including introduction of Fixed Term Employment for industry to hire manpower on short term assignments

CII would continue to provide inputs in the areas of direct and indirect taxes to help India emerge as an attractive destination for business.

In agriculture, CII’s Food and Agricultural Center of Excellence (FACE)is studying the impact of Agricultural Produce Marketing Committee Act (APMC) which needs to be revamped to delist perishables. CII will also undertake a study on gas pricing and its impact on end-users, macro-economic indicators and the investment environment.

In manufacturing, it will work with concerned Ministries and State Governments on delayed projects and also on specific policies, particularly for labour-intensive sectors. CII has called for quick implementation of the National Manufacturing Policy and would bring out a report on Mass Manufacturing policy.For MSMEs, CII plans to launch a Finance Facilitation Centre and initiatives to link Indian SMEs with global value chains.

In services, CII will constitute National Services Competitiveness Council and develop a sectoral strategy for doubling of services export by 2025. It has targeted several sectors such as Tourism and Hospitality, Financial Services, Telecommunications and Professional Services for export promotion.

For better quality higher education, one of the CII interventions will be to launch the 100-100 program where 100 CII member companies will create 100 Faculty Sabbaticals who will spend two/ three months in industry to explore multi-level partnerships like research, curriculum, and skills development. In skills, CII will help implement the National Skill Qualification Framework (NSQF) and continue to work on Sector Skills Councils.

In labour laws, CII will create platforms for sharing best practices from industry which have helped in fostering better industrial relations within the current framework. In addition, it will work with its membership, Trade Unions, Central and State Governments for creating consensus on various issues.

To improve the ease of doing business in India, CII will present to the government best practices in the states which can be emulated in the areas of land acquisition, contract enforcement and taxation. CII has been strongly underscoring the need for a reduction in transactions cost of exports to overcome difficult business conditions abroad. In this context, CII has constituted a task force on transactions costs which proposes a framework for building an efficient trade facilitation mechanism in India.

In order to support entrepreneurship, CII will significantly expand its PPP initiative “India Innovation Initiative” to select the most innovative entrepreneurs through a pan-India competition.