The MNI India Business Sentiment Indicator, a gauge of current business sentiment declined by 4.8% to 63.0 in March from 66.2 in February as growth in output and orders continued to ease.
Business confidence, which was boosted following the general election last year has gradually fallen, with sentiment now at the lowest level since April 2014, the month prior to Modi’s election. Confidence is now down 3.8% on the year and 5.7% below the average seen in 2014. In the three months to March, the MNI India BSI averaged 64.5, the lowest since the quarter ending March 2014.
The decline in confidence came in spite of the announcement of some potential positives for the economy in the government’s first full budget which included measures to boost infrastructure spending, improving the ease of doing business, increasing tax collection and curbing the black market. The decline was led by construction companies, although manufacturing and services firms also posted falls in sentiment.
Companies were also less upbeat about the next three months with the Expectations Indicator falling to a four-month low of 74.9 in March from 75.3 in February.
Growth in output and orders continued to ease in March. The Production Indicator fell for the fourth consecutive month to the lowest level since May 2014 and was 8.5% down on the year. The New Orders Indicator, which is a key signal of business demand declined for the fifth consecutive month to the lowest since June 2013.
While the rate cut in January helped boost overall business sentiment in February, there was little sign that the March cut, which came at the start of our survey period was having a positive impact yet and may take time to feed through, as for now companies reported a further weakening in their financial positions.
Commenting on the latest survey, Chief Economist of MNI Indicators Philip Uglow said, “While there are a lot of positives out there for India, our survey suggests that economic growth peaked in the second half of 2014 and has subsequently eased. Rate cuts and low inflation should help to underpin growth this year, although our latest survey cautions against getting too excited about the short-term growth outlook.”
MNI India Business Sentiment is a monthly poll of Indian business executives at companies listed on BSE (formerly known as the Bombay Stock Exchange). Companies are a mix of manufacturing, service, construction and agricultural firms.