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How biz optimism deteriorating in India

Challenges to businesses are growing alarmingly and going stronger by the day. The optimism level of businesses in India is nothing to write home about. In fact, it has deteriorated to a five-quarter low in Q3 2022. That’s what a recent study by Dun & Bradstreet suggests. Dun & Bradstreet is not alone.

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How biz optimism deteriorating in India
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5 Sept 2022 10:38 PM IST

Challenges to businesses are growing alarmingly and going stronger by the day. The optimism level of businesses in India is nothing to write home about. In fact, it has deteriorated to a five-quarter low in Q3 2022. That's what a recent study by Dun & Bradstreet suggests. Dun & Bradstreet is not alone. Even going by RBI estimates, the Business Confidence in India decreased to 134.70 points in the second quarter of 2022 from 137.80 points in the first quarter of 2022.

Mind you that in India, the Business Expectations Index (BEI) is calculated as a weighted (share of GVA of different industry group) net response of nine business indicators. The nine indicators considered are: (1) overall business situation; (2) production; (3) order books; (4) inventory of raw material; (5) inventory of finished goods; (6) profit margins; (7) employment; (8) exports; and (9) capacity utilisation. BEI gives a snapshot of the business outlook in every quarter and takes values between 0 and 200, with 100 being the threshold separating expansion from contraction. The number of total responses varies from quarter to quarter and averaged 1,200 over the last two years.

The deterioration in the business optimism level can be attributed to slowing down of global growth, monetary policy spillovers, high inflationary pressures, a depreciating rupee and the rise in interest rates.

What has added to the worries and weak sentiments is the imposition of taxes on goods and services, especially on export goods, which is likely to impact corporate earnings.

However, when it comes to the optimism level of small and medium businesses, the same Dun & Bradstreet (along with Assocham) feel that the small and medium businesses in India are cautiously optimistic about their business performance for Q3 2022, although the index, which measures the level of optimism of small and medium businesses on key business parameters such as sales, employment, prices, inventory, and investment, stood at 83 in Q3 2022, marginally down from 87 in Q2 2022.

Quite significantly, in terms of salary budget planning (which is another indicator of business confidence and optimism), companies in India are budgeting an overall increase of 10 per cent for 2022-23, compared with the actual 9.5 per cent growth in the previous year, going by a recent study by the Global advisory, broking and solutions company- Willis Towers Watson's (WTW). It says that more than half (58 per cent) of the employers in India have budgeted for higher salary increases for the ongoing fiscal year compared to last year, while a quarter of them (24.4 per cent) made no change in the budget.

Only 5.4 per cent have reduced the budget as compared to 2021-22. And at 10 per cent, salary increases in India continue to be the highest in the Asia Pacific (APAC) region.

Statistics are often confusing and it's all about interpretation of the numbers. But at the end of the day, what is crucial is that the managers of Indian economy must ensure that going forward, demand heads northward and risks are mitigated as much as possible. These, in turn, will keep the optimism level high.

Business Expectations Index GVA Willis Towers Watson APAC 
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