Short-term business confidence among small companies slips: CII survey

The small enterprises have toned down their growth prospects for the next quarter thanks to increasing costs, CII’s quarterly survey of Micro, Small and Medium Enterprises (MSME) has found.

Business confidence — a reflection of how many of the company heads think their business will do better or worse in the current quarter — dipped from 62.1 three months ago to 57.2 in the latest survey. The industry representatives are asked to compare their prospects for the ongoing September quarter to how they performed in the last (June) quarter.

A value of 50 means the overall sentiment is neither favorable not unfavorable and businesses expect things to remain unchanged. Less than 50 indicates that they expect things to get worse, while anything between 50 and 100 indicates they think their business will do better.

A year ago, the confidence level among MSMEs was 65.6. ” This decline represents the biggest (and sharp) decline in the last 12 months, that the index has suffered,” CII, the Confederation of Indian Industries, India’s largest industry association, said.

“The sharp decline in the Business Confidence Index (BCI) for MSMEs is attributable to continuous and persistently high inflation and the anticipation that the interest rates may be further hiked by the Central bank,” it said.

As proof, it pointed to two particular questions – credit cost and credit availability for capacity expansion — which saw a “dramatic decline”, forcing the overall index down. In other words, with banks charging higher interest rates, small companies feel it is becoming tougher for them to get loans.

The banks are forced to charge higher interest rates to suck out excess money in the system and keep price rise under control. Industry and consumers tend to have conflicting expectations from interest rates in the short term, as high interest rates keep prices down, but make life difficult for industries.

The areas where large amount of optimism was found are in revenue growth, capacity utilization and employment, scoring above 70

Input costs (26.7) was the only variable that was below 30, though an improvement over previous quarter.

As always, it showed that services sector enterprises, on an average are expecting to perform better than their industrial counterparts.

Their confidence was at 61.3 compared to 53.1 for industrial companies, such as manufacturing.

Services did better than the industrial sector in 13 out of the 14 variables on which the mood was assessed.

The moods are as follows:

Services against Industries (July-Sep Quarter)

Gross sales (81.9 against 70.4)
New orders / contracts (82.2 against 66.5)
Capacity expansion (72.2 against 65.5)
Exports (65.6 against 59.4)
Selling prices (54.4 against 54.1)
Credit cost for capacity expansion (41.5 against 34.7)
Employment (77.8 against 63.6)
Net profit margin (62.0 against 51.6)
Credit availability for working capital (59.9 against 48.5)
Credit availability for capacity expansion (53.8 against 50.7)
Inventory level (55.3 against 47.3)
Credit cost for capacity expansion (46.0 against 39.1)