Rising crude prices, weakening rupee tanks business confidence
The fall in the business confidence index continues for the second straight quarter in the July-September 2018 period. The business confidence index (BCI), on a scale of 100, dropped to 48.7 as compared to 49.3 in the previous survey and 50.6 in the quarter before that.
The business leaders were expecting a whole host of parameters to worsen in the current quarter, including overall economic situation, overall business situation, economic prospects of the business, financial situation, order book, cost of raw material, utilization of production capacity, investment in business operations, cost of external finance, imports and profits.
The survey highlights that 31 per cent respondents expect the financial situation to worsen in the quarter ending December 2018 as compared to 25 per cent in the previous survey. A higher number of corporate leaders - 56 per cent - expect the cost of raw material to rise in the current quarter as compared to 42 per cent in the previous survey.
The survey also points out that 48 per cent respondents expect worsening of CAD to affect the economic fundamentals while another 68 per cent expect oil prices to go higher over the next few months. After bottoming out at $27.67 a barrel in January 2016, the Brent crude prices have been hovering at around $80 per barrel for quite some time. The continued uptrend in the crude prices has worried investors and business leaders with some forecast suggesting prices to touch $100 a barrel.
The BCI in the July-September 2018 quarter is marginally better than the corresponding quarter in 2013 - when the index stood at 48.2 - months before the UPA-2 tenure was coming to an end. In the subsequent quarters of 2013/14, BCI continued to rise before started to lose steam from January-March 2015 quarter onwards.
The survey shows that 36 per cent respondents expect the utilisation of production capacity to slow down in the October-December quarter as compared to 26 per cent expecting the same in the previous survey. The low private sector investment is expected to continue because some 29 per cent leaders anticipate investment in business operations to slow down in the current quarter in comparison to 23 per cent respondents in the previous survey.
According to the survey, some parameters have registered improvement in the current quarter as compared to the previous one. These include production level, availability of finance, sales, exports and selling price.
Aroon Purie, Editor-in-Chief, India Today Group, of which Business Today is a part of, said that the rise in crude oil prices and depreciating rupee have battered the corporate sentiments. "The below-target GST collections, rising current account deficit, along with worries about the global trade war, rising commodity prices and weaker rupee have made businessmen quite pessimistic about the near term future".