Survey notes improvement in demand conditions and capacity utilisation

Industry body FICCI's latest business confidence survey has showed there is an improvement in the confidence level of India Inc.

The survey conducted in April found the overall business confidence index stood at 67.6 in the current round compared to 63.9 previously.

The survey gauges the respondents' expectations for the period April to September 2022. The survey participants belong to a wide array of business sectors.

The findings reflected improved confidence amongst industry members in the near term on some operational parameters, including sales and investments. For instance, the proportion of respondents anticipating better sales prospects over the near term stood at 62 per cent in the current survey - higher than 50 per cent in the previous round last year.

As reflected in the latest survey results, the demand situation is progressively witnessing an improvement. In the current survey round, 46 per cent of the participants cited weak demand as a constraining factor vis-à-vis 60 per cent stating likewise in the previous round and about 70 per cent citing the same last year.

Further, the investment outlook of participating companies also showed a discernible improvement. A little over 50 per cent of the respondents anticipated higher investments vis-à-vis 40 per cent stated likewise in the previous round.

Improvements are also noticed on the capacity utilisation levels parameter, with 45 per cent of respondents indicating a capacity utilisation of over 75 per cent in the present survey round. It was 30 per cent in the previous round.

However, escalating raw material prices amidst the ongoing geopolitical tensions are weighing heavy on the near-term outlook for profits. As a result, the percentage of participants citing higher profits over the next six months declined to 22 per cent in the latest survey from 30 per cent of respondents in the previous round.

About 84 per cent of the participating companies stated higher raw material costs as a significant impediment to their businesses in the present survey. The figure was 82 per cent in the previous round.

Further, 48 per cent of respondents said that they had witnessed an increase in their cost of production by a margin greater than 10 per cent. On the other hand, about 43 per cent pointed to an increase between 5 per cent to 10 per cent. 9 per cent of respondents stated a rise in production cost by up to 5 per cent.

The participants underscored the increasing difficulties in enduring the rising cost pressures; the same is being passed on to the consumers. 77 per cent of the participants acknowledged the passage of higher costs to the consumers.

Amongst companies passing on the part of the increase in their overall costs to consumers, around 57 per cent said that they had passed over 10 per cent of the increased costs on to the final consumers (vis-à-vis 34 per cent stating likewise about two quarters ago). 22 per cent of the respondents reported that they had passed on over 20 per cent of the rise in costs to their consumers.

However, about 43 per cent of the participants said that they had only passed on less than 10 per cent of the increased cost to their customers. The corresponding number about two quarters back was 66 per cent.