Business confidence falls further in December on weak demand

NEW DELHI: Business sentiment in the country eased for the second consecutive month in December as weak demand weighed on companies, a Deutsche-Borse survey said.

The MNI India Business Sentiment Indicator, a gauge of current sentiment among BSE-listed companies, fell slightly to 60.7 in December from 60.9 in November.

Confidence has gradually declined throughout this year, with the Business Sentiment Indicator averaging 61.3 in the three months to December, which was also the weakest quarter in 2015.

"The decline in business sentiment throughout 2015 casts some doubt over the sustainability of growth in India. Notably orders, a key measure of activity, have been declining for more than a year", MNI Indicators Chief Economist Philip Uglow said.

The fall in sentiment was observed across both manufacturing and service companies, while sentiment among construction sector companies rose.

Weak domestic demand continues to bear down on business confidence. Production and new orders were down 9.7 per cent and 8.6 per cent respectively in December, on year-on-year basis.

"The stabilisation in export orders and production provides some optimism that things might be on the turn, but we need to see more data to see if this does indeed prove to be the case", Uglow added.

On the prices front, the report said companies faced lower costs for raw materials and other inputs owing to the fall in crude oil and other commodity prices.

While some companies reported that they had passed on these cost savings to their customers, several reported that they had cut their prices even more sharply owing to high competition and low demand.

The decline in input prices and stronger disinflationary pressure on prices received should help limit demand pressure on inflation, Uglow said.

Efforts to tackle price pressure from the supply side need to be stepped up to enable the RBI use monetary policy effectively to support the economy, he added.