Political gridlock on economic reforms, high inflation and uncertain global environment are likely to hurt business confidence in the country in the current quarter, says US-based research firm Dun&Bradstreet.
"D&B Business Optimism Index for the third quarter of calender year 2012 plunged yet again,extending this year's downward spiral as unstable global and domestic economic environment takes its toll on domestic firms," Dun &Bradstreet President (India) and CEO Kaushal Sampat said.
"Domestic business environment continues to be plagued by challenges such as high inflation, sluggish policy making environment, rising input costs, high interest rates and heightened uncertainty in global economy. The index reveals that businesses are more pessimistic than they have been in three years, about prospects for sales, orders and profits," he added.
The Business Optimism Index (BOI), which measures the pulse of the business community, decreased by 5.2 percent vis-a-vis the year-ago period to 136.1 points for the third quarter of calender year 2012.
In comparison to the second quarter of 2012, the BOI was down by 9.2 percent. For calculating the composite BOI, each of the six parameters -net sales, net profits, selling prices, new orders, inventories and employee levels - is assigned a weight.
The parameter weights are then applied to these ratios and the results aggregated to arrive at the Composite Business Optimism Index.
It was observed that each of the six optimism indices reflected a subdued outlook compared to the previous quarter. The subdued business confidence of Indian corporates is also reflected in their lower net profit expectations, which declined 12 percentage points y-o-y.
The optimism for selling prices also registered an yearly fall of 17 percentage points. According to the report, the employment scenario in the country is likely to be muted in the coming quarter, with 57 percent of respondents expecting the size of their workforce to remain unchanged same during the third quarter of 2012.
In comparison, 39 percent intend to keep the number of employees to increase and another four percent anticipate a decline. Looking ahead, situation of monsoon will play a crucial role in shaping business sentiment and would also impact food prices.
"Going ahead, even marginal policy actions could go a long way in propping up business sentiment, and the progress of monsoon would also be critical in shaping business sentiment and influencing the pace of food inflation, Sampat said.