The MNI India Business Indicator experienced the sharpest fall in 11 months, declining 6.1% to 64.2 in January from 68.4 inDecember 2014.
Business confidence eased for the fourth consecutive month to the lowest level sinceApril 2014, the month before Narendra Modi was elected as Prime Minister. Sentiment is almost 10% down from its peak in September and barely above the level inJanuary 2014.
The "Modi boost" we witnessed following the election has waned gradually as businesses have become increasingly disappointed with a lack of concrete reforms to lift the economy out of its current slump. It was companies within the manufacturing sector in particular, a key focus of the incumbent government, which revised down their perception of the current business environment.
Along with overall business sentiment, key activity metrics such as New Orders, Production and Order Backlogs all fell below their averages for 2014 in January. New Orders declined to the lowest in just over a year, while Production fell to the lowest sinceJuly 2014. One of the biggest concerns among companies was the appreciation of the Indian rupee with one-fifth of our panel reporting that the current exchange rate was hurting their business operations.
The Reserve Bank of India's (RBI) decision to cut the key policy rate by 25 basis points to 7.75% in early January came a tad late in our survey period to have a material impact on this month's results.
One positive from the survey this month was that companies were willing to take on more workers, as reflected by the improvement in the Employment Indicator to 50.8 in January from 50.0 in December, a seven-month high.
Commenting on the latest survey, Chief Economist of MNI Indicators Philip Uglow said, "While the MNI Business Indicator stands significantly above the levels seen in 2013 whenIndia was in the midst of a currency crisis, the continued downturn in sentiment serves as a note of caution to some of the more optimistic forecasts forIndia's growth."
"In hand with the recent weakness in our sister consumer survey and the continued low level of inflation, there is scope for the RBI to loosen monetary policy further."
