The Business Assessment Index fell sharply from 108.4 in Q1 FY20 to 92.5 in Q2 FY20.
Finance Minister Nirmala Sitharaman recently announced a cut in corporate tax, but even these big announcements could not regain confidence among manufacturers and industrialists in India. A slump in order inflows, output and employment conditions in the second quarter led to a steep fall in the business sentiment. The business sentiment and expectations are at the lowest level in at least the last five years. The Business Assessment Index fell sharply from 108.4 in Q1 FY20 to 92.5 in Q2 FY20, according to the RBI report. Cost pressures from interest payments on borrowings, purchase of raw materials and salary expenses were assessed to have softened, but manufacturers seemed pessimistic about profit margins in view of slack demand and negative sentiments on selling prices.
The survey was conducted for qualitative assessments of the business climate by 481 companies in India’s manufacturing sector. The manufacturers also expect a downturn in profit margins in the third quarter due to subdued optimism in demand parameters such as production, order books, employment, and exports. The manufacturing sector remained pessimistic about the availability of finance. With moderation of optimism on selling prices and marginal edging up of the cost of raw materials, the Business Expectations Index also edged down from 112.8 in Q2 FY20 to 102.2 in Q3 FY20.
The pessimism has not only shadowed the manufacturing sector but even the RBI has lowered the growth forecast of the Indian economy. Due to various high-frequency indicators suggesting continued weakness in the domestic demand conditions, the RBI lowered the real GDP growth for 2019-20 from 6.9 per cent in the August policy to 6.1 per cent.
“While the recent measures announced by the government are likely to help strengthen private consumption and spur private investment activity, the continuing slowdown warrants intensified efforts to restore the growth momentum,” said the Monetary Policy Committee.