Home / Market / Stock-market-news /  Modi govt at 2: business sentiment lower than it was in May 2014

The government is planning a two-week bash to celebrate its second anniversary, but business sentiment on the ground is quite muted. Not only are more businessmen pessimistic about current conditions compared to two years ago, they don’t expect things to improve in the quarter ahead as well.

The MNI India Business Sentiment indicator for current conditions for May is 61.8 compared to 67 in May 2014 when the Modi government took charge.

This indicator, prepared by a unit of Deutsche Börse AG, is a monthly poll of business executives at around 400 companies listed on the BSE.

The indicator is now at the same level as January when a consensus view was emerging that an economic revival was taking place. But recent corporate results and muted growth in other indicators such as the index of industrial production have given cause for a re-think. Even a 25 basis points rate cut by the Reserve Bank of India in April doesn’t seem to have worked. That also goes to show that the clamour for further rate cuts is misdirected, not really surprising in an economy with excess capacity in several industries.

So, what has caused the dip in sentiment?

Weak export orders and higher raw material costs have dented the confidence of businessmen, especially in manufacturing industries. Sentiment among construction and service sector firms improved.

The export orders index fell to 52.9, the lowest level since May 2013. Input costs surged for third month in a row to 60.3, the highest in almost a year as commodity prices start recovering. Crude oil prices, for instance, are about 75% higher from their recent lows.

Despite hopes of a good monsoon this year, businessmen are also less sanguine about prospects three months down the line. Orders are expected to remain weak and firms also see output prices rising in the coming three months as they pass on input cost increases to their customers.

“With growth in China weakening, there has been increased focus on India’s ability to grow rapidly for a sustained period. Evidence from the MNI India Business Sentiment Survey, though, paints a relatively subdued picture with output growth in particular running at a low level, “said Philip Unglow, chief economist at MNI Indicators.

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