India Inc's confidence is Up

May 08, 2022

FICCI's latest Business Confidence Survey notes improvement in demand conditions and capacity utilisation

Rising input prices continue to pose a significant challenge for businesses leading to cost-push inflation 

NEW DELHI, 08 May 2022: FICCI's latest Business Confidence Survey reports an improvement in the confidence level of India Inc. Overall Business Confidence Index stood at 67.6 in the current round compared to 63.9 previously.  

The survey finds an improvement in both current conditions and the expectations of Indian companies in its latest round. The Current Condition Index improved to 66.1 from 62.6 in the last survey, while the Expectations Index improved to 68.4 from 64.5.  

The survey - conducted during April 2022 - gauges the respondents' expectations for the period April to September 2022. The survey participants belong to a wide array of business sectors. 

The findings reflect improved confidence amongst industry members in the near term on some operational parameters, including sales and investments. For instance, the proportion of respondents anticipating better sales prospects over the near term stood at 62% in the current survey - higher than 50% in the previous round.  

As reflected in the latest survey results, the demand situation is progressively witnessing an improvement. In the current survey round, 46% of the participants cited weak demand as a constraining factor vis-a-vis 60% stating likewise in the previous round and about 70% citing the same last year.  

Further, the investment outlook of participating companies has also reported a discernible improvement. A little over 50% of the respondents anticipated higher investments vis-a-vis 40% stated likewise in the previous round.   

Improvements are also noticed on the capacity utilisation levels parameter, with 45% of respondents indicating a capacity utilisation of over 75% in the present survey round. It was 30% in the previous round.   

However, escalating raw material prices amidst the ongoing geopolitical tensions are weighing heavy on the near-term outlook for profits. As a result, the percentage of participants citing higher profits over the next six months declined to 22% in the latest survey from 30% of respondents in the previous round.   

The geopolitical stress is causing considerable uncertainty. The Russia Ukraine conflict impacts already high global commodity prices and has raised fresh concerns regarding global recovery. Moreover, the cost of production has already been on the rise for the past six months, and the current conflict has further raised upside pressures on the prices of key industrial inputs.  

About 84% of the participating companies stated higher raw material costs as a significant impediment to their businesses in the present survey. The figure was 82% in the previous round.   

Further, 48% of respondents said that they had witnessed an increase in their cost of production by a margin greater than 10%. On the other hand, about 43% pointed to an increase between 5% to 10%. 9% of respondents stated a rise in production cost by up to 5%.  

The participants underscored the increasing difficulties in enduring the rising cost pressures; the same is being passed on to the consumers. 77% of the participants acknowledged the passage of higher costs to the consumers.  

Amongst companies passing on the part of the increase in their overall costs to consumers, around 57% said that they had passed over 10% of the increased costs on to the final consumers (vis-a-vis 34% stating likewise about two quarters ago). 22% of the respondents reported that they had passed on over 20% of the rise in costs to their consumers.  

However, about 43% of the participants said that they had only passed on less than 10% of the increased cost to their customers. The corresponding number about two quarters back was 66%.  

The Outlook on Exports also reported a slight deterioration. In the latest survey, 34% of respondents said they foresee 'higher to much higher' exports over the next two quarters. However, this number was two notches lower than the corresponding 36% seen in the previous round. Even though India's export prospects have been robust, global trade is expected to witness a slowdown given the extended nature of the ongoing conflict between Russia and Ukraine.