3. MNI India Business Report - July 2014 3
MNI India Business Report - July 2014
Contents
4 Editorial
6 Executive Summary
10 Economic Landscape
14 Indicators
15 MNI India Business Indicator
16 Production
17 New Orders
18 Export Orders
19 Productive Capacity
21 Order Backlogs
22 Employment
23 Inventories
24 Input Prices
25 Prices Received
26 Financial Position
27 Interest Rates Paid
29 Effect of Rupee Exchange Rate
30 Supplier Delivery Times
31 Availability of Credit
32 What the Panel Said
34 Data Tables
38 Methodology
4. Spitzzeile Titel4
The government’s maiden budget tried to appease
all, offering something for everyone. But it lacked
spice – it was rather like making a dal without the
tarka!
Dal without Tarka
5. MNI India Business Report - July 2014 5
The finance minister, Arun Jaitley, in his maiden
budget speech tried to appease all, offering something
for everyone. But it lacked spice – it was rather like
making a dal without the tarka.
What the budget did do was clearly signal the pro-
right policies of Prime Minister Narendra Modi and
the Bharatiya Janata Party. But while it had the feel
good factor, it lacked detail and failed to provide a
clear roadmap for tough reforms. We expected to see
more concrete proposals from Modi’s government
which has, after all, secured the strongest mandate in
30 years.
The government expects economic growth, which has
been below 5% for two consecutive years, the worst
performance in a quarter of a century, to bounce back
to 5.4-5.9% in the current fiscal year and an annual
7-8% in the next three years. To achieve this, it has
pledged to sharply cut government debt, bring down
inflation, heavily invest in infrastructure and create
more jobs. And infrastructure is the key priority with a
clear goal to increase investment in areas such as
roads, railways, power and airports. India, though, is
not like China and we need to see just how well
Modi’s plans hold up against a wave of red tape which
has in the past stymied infrastructure improvement.
And to maintain the comparison with China, India
does not have an excess of money to splurge. The
government’s hands are tied by a sizeable fiscal
deficit, and so there is reliance on public-private
partnership projects and a need to attract foreign
investment. The latter will be helped on the relaxation
of rules on foreign ownership with the budget
announcing that it will allow 49% ownership in local
defense ventures and insurance companies. Since
2001, when the defense sector was first opened, it
has attracted a meagre $4.1 million in foreign
investment, much lower than other industries such as
telecoms, software services etc.
Certain policies have been drafted to encourage
savings and provide relief to the middle class who
have been burdened by persistently high inflation in
the country over the past two years. An increase in
income tax deduction limits helps, and so to do the
concessions for automobile and consumer durable
sectors that have already been extended by six
months. Increased investment in agricultural storage
may help deal with food supply issues, the main
contributor to stubborn food inflation.
In other areas the budget drafted plans to introduce
the long overdue goods and services tax by the end
of the year, which is expected to simplify India’s
cumbersome tax system by replacing a series of
existing taxes such as value added tax, excise duty
and service tax to raise revenues. There was, though,
little information on implementing it. It won’t be easy
as it’s opposed by many states.
Finally the budget failed to address in detail key
areas such as subsidies which the Modi government
must try to get to grips with. All in all it was a budget
focused on encouraging investment, personal savings
and fiscal management and has in general avoided
the usual freebies previous finance ministers have
given in to, a rare move in a poverty stricken nation.
But with little detail it failed to stimulate our taste
buds.
Shaily Mittal
Economist
MNI Indicators
6. Spitzzeile Titel6
While overall business conditions increased to a
record high, probably in a wave of Modi optimism,
other key indicators in the report declined in July.
Executive Summary
7. MNI India Business Report - July 2014 7
Business confidence rose to the highest since the
survey began in November 2012 in a wave of
optimism that India’s new Prime Minister, Narendra
Modi, will be able to revive the economy and stimulate
the business environment.
The MNI India Business Indicator increased for the
third month in a row to 70.0 in July from 69.2 in
June. The rise was mainly led by construction and
services companies, while the majority of
manufacturing companies also remained highly
optimistic. Infrastructure is a key focus area in the
new government’s plan for turning the economy
around and construction companies in our panel are
already increasingly optimistic, with sentiment here
rising at the fastest pace in nine months.
While overall business conditions increased, probably
in a wave of Modi optimism, other key indicators in
the report declined in July. Production, New Orders,
Export Orders and Employment all fell between June
and July, although they remained in expansion.
The Production Indicator edged down to 61.8 in July
from 63.2 in June, the lowest since May but well
above the level seen in the same month a year earlier.
After falling to a record low level at the start of the
year, Order Backlogs have subsequently trended
upwards, showing signs of a revival in demand.
However, in July, fewer companies reported higher
backlogs, although they still expected to see growth
over the coming three months.
Having suffered with high input costs over the past
year, companies saw some relief in July as the Input
Prices Indicator hit a series low, although remained in
expansion.
Even though current prices eased, companies were
apprehensive about prices over the next three months
as a poor monsoon and violence in Iraq are expected
to impact food and fuel prices. Expectations for Input
Prices in three months’ time rose for the first time in
five months in July to 59.8 compared with 56.2 in
the previous month.
The prices companies charge have remained elevated
over the past year, however they have eased
somewhat since the start of the year, with the three
month trend gradually easing.
Companies’ financial health improved for the fourth
month in a row to the highest level since September
2013.
Businesses expected credit availability to improve in
the next three months as the Future Expectations
Indicator rose to 65.8 from 63.7 in the previous
month, the highest since April.
More companies reported that the interest rates paid
by them were lower compared with the previous
month, pushing the indicator to the lowest since
February 2013, the beginning of the data series.
After slipping below the 50 expansion/contraction
level in the previous month, the Effect of the Rupee
Exchange Rate Indicator rose to 51.1 in July, as
fewer companies reported that the exchange rate
was hurting their operations.
9. w
Business confidence
in July rose to the
highest since the
survey began in No-
vember 2012.
Business sentiment among construction companies
rose by the highest pace in nine months.
10. Spitzzeile Titel10
In its first budget, the government vowed to lift
economic growth to 7-8% in the next three years
by promoting manufacturing growth, investment in
infrastructure and reducing the fiscal deficit to as
low as 3% by 2016.
Economic Landscape
11. MNI India Business Report - July 2014 11
In its first budget, the government vowed to lift
economic growth to 7-8% in the next three years by
promoting manufacturing growth, investment in
infrastructure and reducing the fiscal deficit to as low
as 3% by 2016. The budget focused on attracting
foreign capital by opening sectors, encouraging
personal savings and creating incentives for
businesses to invest. Disappointingly the budget fell
short of being strict on overhauling subsidies and
lacked detail in the implementation of the goods and
services tax that is expected to boost revenue and
make it easier to do business.
Latest economic data from India has been encouraging
and showed some signs of revival. Consumer price
inflation eased to the lowest on record in June, while
wholesale price inflation fell to a four month low.
However, with fears that a below normal monsoon
will put upward pressure on food prices, and that
turmoil in Iraq will negatively impact India’s fuel
import bill, it will be challenging for the Reserve Bank
of India to cut interest rates. Industrial production
expanded for the second consecutive month in May,
of which output of consumer durables grew for the
first time in eighteenth months, a tentative sign of a
revival in consumer demand.
Economic growth remains subdued
The economy grew by 4.7% in 2013-14, slightly
above the 4.5% growth witnessed a year ago. This
was the first time in 26 years that growth has been
below 5% for two successive years.
GDP in India slowed to 4.6% on the year in the three
months to March, down from 4.7% in the previous
quarter. It was, though, marginally above the 4.4%
rate seen in the same period a year ago.
Data on an output basis showed that growth in the
three months to March was boosted by agriculture
which grew 6.3% on the year, compared with 3.7% in
the previous quarter and 1.6% in the same quarter a
year earlier. Manufacturing data was disappointing
and remained in contraction, declining by 1.4%
compared with a fall of 1.5% in the previous quarter,
and substantially below the growth of 3% in the same
quarter a year earlier. Service sector output, grew by
12.4%, down from 14.1% in the previous quarter but
up from the 11.2% increase seen in the January-
March quarter a year ago.
The government expects the economy to grow by 5.4-
5.9% in the current fiscal year, although a poor
monsoon, relatively weak external environment and
weak investment means growth closer to the lower
end of the forecast range seems more likely.
May industrial output expands
Industrial production accelerated in May by 4.7% on
the year from 3.4% in April, the second consecutive
rise on the month.
Manufacturing, which contributes about 75% to
industrial output, grew by 4.8% on the year, the
highest since October 2012 and up from 2.5% in the
previous month. Sixteen out of the 22 industry groups
within the manufacturing sector expanded in May, led
by a huge 60% rise in ‘Furniture manufacturing’,
followed by 37.1% growth in ‘Tobacco products’ sector
and a 33.7% increase in the output of ‘Electrical
machinery and apparatus’. The industry group ‘Radio,
TV and communication equipment & apparatus’
Economic Growth
0%
2%
4%
6%
8%
10%
12%
Q12009
Q42009
Q32010
Q22011
Q12012
Q42012
Q32013
GDP Y/Y % , fiscal year
Source: Central Statistical Organisation, India
12. MNI India Business Report - July 201412
Wholesale price inflation, which the RBI used to focus
on, eased to the lowest in four months, to 5.4% in
June from 6% in May. The prospect of weak monsoon
rains, a rise in minimum support prices (floor price
offered by the government to farmers) and turmoil in
Iraq has increased the risk of rising food and fuel
prices. The government plans to bring down inflation
by tackling supply constraints and creating cold
storages and warehouses to prevent food spoilage.
Repo rate at 8%
The RBI left the key policy rate unchanged at 8% at
its monetary policy meeting on June 3, the first
interest rate decision since the BJP formed a new
government.
Governor Rajan said further policy tightening would
not be warranted if the economy continues on a
disinflationary path. At the same time, the RBI took
steps to raise the availability of credit, reducing the
mandatory amount of bonds lenders must keep with
the central bank - called the statutory liquidity ratio -
by 50 basis points to 22.5% of deposits.
Fighting inflation is expected to remain the central
bank’s priority and it is firmly focused on keeping the
showed the highest negative growth of 40.3%,
followed by a 28.6% decline in ‘Office, accounting &
computing machinery’ and a 7.4% contraction in
‘Motor vehicles, trailers & semi-trailers’.
Mining output grew for the seventh month in a row by
2.7% in May compared with 2.6% in April. Output of
consumer durables, a measure of consumer demand,
grew for the first time in eighteenth months, rising by
3.2% in May compared with a 7.8% decline in the
previous month. Capital goods output, a proxy for
investment, rose for the second month in a row by
4.5% on the year, following four months of contraction.
Inflation eases in June
Consumer prices, which the Reserve Bank of India
now targets, rose by the slowest pace since creation
of the CPI index in January 2011 by 7.31% in June
compared with 8.28% in May. Food price inflation,
which makes up almost half of the basket, fell to 7.9%
from 9.2% in the previous month. There are, though,
concerns that a deficient monsoon could push food
inflation higher. Core CPI inflation, which excludes
food and energy, eased slightly to 7.73% from 7.74%
in the previous month.
Inflation
0%
2%
4%
6%
8%
10%
12%
Apr-12
Jun-12
Aug-12
Oct-12
Dec-12
Feb-13
Apr-13
Jun-13
Aug-13
Oct-13
Dec-13
Feb-14
Apr-14
Jun-14
Wholesale Price Inflation*
Consumer Price Inflation**
Source: *Office of the Economic Advisor, India, **MOSPI
Industrial Production
-10%
-5%
0%
5%
10%
15%
20%
25%
50
100
150
200
250
2007
2008
2009
2010
2011
2012
2013
2014
Industrial Production y/y % (RHS)
Industrial Production
Source: Central Statistical Organisation, India
13. MNI India Business Report - July 2014 13
economy on a disinflationary glide path that is
intended to hit 8% inflation by January 2015 and 6%
by January 2016.
Lower fiscal budget deficit
The government budget deficit stood at Rs. 5.08
trillion in 2013-14, or 4.5% of GDP, mainly on account
of curbs on government expenditure. Net tax receipts
totalled Rs. 10.15 trillion, below the target of Rs.
10.29 trillion, while total expenditure was Rs. 15.63
trillion, below the target of Rs. 15.9 trillion in the
interim budget.
Finance Minister, Arun Jaitley announced that he
planned to shrink the budget deficit to 4.1% of GDP
this fiscal year and subsequently to 3.6% and 3% of
GDP in the following years, however he did not detail
exactly how the government planned to do this. The
government expects Rs 9.77 trillion from taxes and
expenditure of Rs. 17.92 trillion in the current fiscal
year. The cap on foreign investment was raised to
49% in the defense and insurance sectors and more
public private partnerships are to be encouraged for
road building. The budget was disappointing in the
sense that the government did not manage to cut food
and fuel subsidies which cost the government $40
billion a year.
Trade deficit widens to 11-month high in June
India’s trade deficit widened to $11.8 billion in June
from $11.2 billion in May, and was also 4.3% above
the $11.3 billion shortfall recorded in June a year
earlier.
Exports increased by double digits for the second
consecutive month by 10.2% on the year to $26.5
billion, although slightly below May’s exports worth
$28 billion. Imports rose for the first time in 13
months, increasing by 8.3% on the year in June
compared with a contraction of 11.4% in the previous
month, but were 2.5% below the $39.2 billion
recorded in May. Oil imports rose almost 11% to
$13.3 billion in June. Gold imports inched up to $3.1
billion from $2.2 billion in May and were also 65% up
on the year reflecting the easing of some gold import
restrictions in May with premier trading houses being
added to the list of entities allowed to import gold. To
trim the current account deficit last year, the
government increased import duties on gold and
imposed a rule that required a fifth of all bullion
imports to be re-exported. Those measures had
crimped supply and led to a rise in smuggling. Finance
Minister left the import tax on gold unchanged at 10%
in the annual budget against market expectations that
the tax would be cut to boost supply ahead of the
festival season.
Car sales rise in June
Car sales rose to the highest in 10 months, increasing
by 14.8% in June, following growth of 3.1% in May.
Sales in the three months to June gained 2.3% to
444,242 cars, over the same period a year earlier.
Heavy discounting by car manufacturers has aided
volume growth as companies have gone the extra mile
to attract price sensitive buyers.
The new government has given positive impetus to
consumer sentiment by extending tax breaks on
automobiles by six months to the end of December.
The excise tax has been reduced on small cars,
motorcycles, trucks and buses from 12% to 8% and
on SUVs to 24% from 30%. The industry is cautious
about the demand for two-wheelers and small cars,
as the predicted below average monsoons could result
in lower incomes for many of the rural households
who rely on these rains.
Foreign reserves increase
India’s foreign exchange reserves rose by $614.6
million to $316.39 billion in the week to July 4.
According to the RBI’s weekly statistical supplement,
foreign currency assets, the biggest component of the
forex reserves, rose by $760.6 million to $286.57
billion.
India’s foreign exchange reserves have risen
substantially since September, leaving the country
less vulnerable to another run on the currency. The
value of India’s gold reserves declined by $155.5
million to $20.6 billion in the week ending July 4.
14. Spitzzeile Titel14
Indicators
Business confidence rose to the highest since the
survey began in November 2012 in a wave of
optimism that India’s new Prime Minister, Narendra
Modi, will be able to revive the economy and
stimulate the business environment.
15. MNI India Business Report - July 2014 15
Business confidence rose to the highest since the
survey began in November 2012 in a wave of
optimism that India’s new Prime Minister, Narendra
Modi, will be able to revive the economy and stimulate
the business environment.
The MNI India Business Indicator increased for the
third month in a row to 70.0 in July from 69.2 in
June. The rise was mainly led by construction and
services companies, while the majority of
manufacturing companies also remained highly
optimistic. Infrastructure is a key focus in the new
government’s plan for turning the economy around
and construction companies in our panel are already
increasingly optimistic, with sentiment rising at the
fastest pace in nine months.
The government’s maiden budget took place within
our survey period and planned to revive the economy
by attracting investment and creating more jobs. The
government outlined an economic reform agenda that
foresees introducing a general sales tax, encouraging
foreign investment and speeding up approvals for
major business projects. With the Modi government in
power, many companies in our panel expect a quick
upturn in the business environment.
Future Expectations for business conditions remained
broadly stable at 78.6 in July compared with 78.5 in
June. All three sectors were highly confident about
future business conditions, with manufacturing firms
leading the pack.
70.0MNI India Business Indicator
Business Sentiment at Record High
MNI India Business Indicator
Jul-13 Feb-14 Mar-14 Apr-14 May-14 Jun-14 Jul-14
Current Conditions 51.8 58.2 65.5 61.9 67.0 69.2 70.0
Future Expectations 67.6 69.5 70.1 79.1 80.3 78.5 78.6
40
45
50
55
60
65
70
75
80
85
Nov-12 Feb-13 May-13 Aug-13 Nov-13 Feb-14 May-14
MNI India Business Indicator
Current Conditions
Future Expectations
“Business conditions are slowly but gradually
improving.” Industrial machinery
manufacturing company
“Due to political stability, we have lot of
expectations from the government.” Real
Estate Holding and Development company
In July, only five out of the 15 current conditions
indicators included in the survey increased, although
all but Order Backlogs were above the 50 expansion/
contraction mark. For business expectations in the
next three months, eight indicators rose on the month.
16. MNI India Business Report - July 201416
The Production Indicator edged down to 61.8 in July
from 63.2 in June, the lowest since May but well
above the level seen in the same month a year earlier.
Production bottomed out in the spring a year ago and
has subsequently been on an upward trend, averaging
62.2 over the past 12 months.
More construction and services companies reported
higher production levels, while the proportion of
manufacturing companies that reported a rise in
Production fell compared with the previous month.
Latest official data showed that industrial production
expanded by 4.7% on the year in May, having grown
by 3.4% in April, the highest since October 2012.
Manufacturing, which constitutes three quarters of
industrial production, rose 4.8% following a gain of
2.6% in April.
In July, more than 50% of companies expected their
Production to increase over the next three months in
anticipation that there will be higher demand in the
festival season. The Future Expectations Indicator
rose to 72.9 in July from 72.1 in the previous month.
Manufacturing was the most optimistic sector while
construction and services companies reported a slight
downward adjustment in their production plans.
Production
Lowest Since May
Production
Jul-13 Feb-14 Mar-14 Apr-14 May-14 Jun-14 Jul-14
Current Conditions 56.9 62.0 64.8 62.0 59.0 63.2 61.8
Future Expectations 76.3 69.7 67.7 70.6 73.9 72.1 72.9
61.8
30
35
40
45
50
55
60
65
70
75
80
Nov-12 Feb-13 May-13 Aug-13 Nov-13 Feb-14 May-14
Production
Current Conditions
Future Expectations
Industrial Production
-3%
-2%
-1%
0%
1%
2%
3%
4%
5%
6%
40
45
50
55
60
65
70
Jan-13
Mar-13
May-13
Jul-13
Sep-13
Nov-13
Jan-14
Mar-14
May-14
Jul-14
Industrial Production y/y % (RHS)*
MNI Production
*Source: Central Statistical Organisation, India
17. MNI India Business Report - July 2014 17
Having risen sharply in June, companies’ order books
shortened slightly to the lowest since May led mainly
by manufacturing and construction sector companies.
The New Orders Indicator fell almost 5% to 63.4 in
July from 66.7 in June, in spite of overall business
sentiment hitting a record high. However, the
approaching festival season will likely give a seasonal
boost to orders.
Expectations for New Orders in three months have
been increasing since the start of the year and after
rising to a series high of 78.6 in June, they eased
slightly to 75.7 in July, led by both manufacturing and
construction companies.
New Orders
Lowest in Two Months
New Orders
Jul-13 Feb-14 Mar-14 Apr-14 May-14 Jun-14 Jul-14
Current Conditions 61.9 62.3 61.5 62.9 60.9 66.7 63.4
Future Expectations 76.8 67.2 70.9 76.9 77.0 78.6 75.7
63.4
30
40
50
60
70
80
90
Nov-12 Feb-13 May-13 Aug-13 Nov-13 Feb-14 May-14
New Orders
Current Conditions
Future Expectations
“We expect lower new orders because of the
monsoon season.” Speciality chemicals
manufacturing company
“Orders are low as the off season has begun.”
Hotels group
18. MNI India Business Report - July 201418
In line with overall business confidence, companies’
Export Orders have trended upwards since April last
year, but they faced lower foreign demand for their
goods and services in July.
The Export Orders Indicator dropped 3.3 points to
61.7 in July from 65.0 in June, the lowest in five
months. In spite of this month’s fall, the indicator was
almost 7% above the same period a year earlier,
pointing to a continued recovery in India’s exports and
in-line with official data which has shown an
improvement in exports.
Improved economic performance, especially in the US
and UK, coupled with the depreciation in the rupee
over the past year, has resulted in greater demand for
Indian exports. Latest data showed that Indian exports
rose by 10.2% on the year in June, the second
consecutive double digit gain.
The rupee has recovered partially since the start of
the year, due to the RBI’s proactive role. Over the past
year, the currency is down 1.2%, although rising
import costs have offset much of this gain for many
companies. However, concerns over violence in Iraq
in recent weeks have increased crude oil prices, with
a subsequent negative impact on the rupee.
Companies’ future expectations about Export Orders
rose to the highest since September, with the
Expectations Indicator increasing to 73.6 in July from
72.0 in June. There was a sharp rise in the proportion
of construction companies who were more optimistic
about their future Export Orders.
Export Orders
Lowest Since February
61.7
30
35
40
45
50
55
60
65
70
75
80
Feb-13 May-13 Aug-13 Nov-13 Feb-14 May-14
Export Orders
Current Conditions
Future Expectations
Export Orders
Jul-13 Feb-14 Mar-14 Apr-14 May-14 Jun-14 Jul-14
Current Conditions 57.7 59.8 67.4 61.7 63.5 65.0 61.7
Future Expectations 68.9 68.2 70.6 68.8 69.4 72.0 73.6
Export Orders Movement
30
40
50
60
70
20
22
24
26
28
30
32
Feb-13
Apr-13
Jun-13
Aug-13
Oct-13
Dec-13
Feb-14
Apr-14
Jun-14
MNI Export Orders (RHS)
Exports,FOB, USD B*
*Source: Indian Ministry of Commerce and Industry
19. MNI India Business Report - July 2014 19
The Productive Capacity Indicator declined for the
second month in a row to 59.9 in July from 60.9 in
June.
The decline was led by manufacturing companies as
the proportion of them that reported increased
productive capacity fell significantly. In contrast,
construction companies showed an improvement in
their capacity. In general, companies’ Productive
Capacity has trended upwards since the survey
started in November 2012, although its pace of ascent
has slowed in 2014.
Companies’ expectations about Productive Capacity
in the next three months was strong and remained at
68.9 in July.
Productive Capacity
Lowest Since March
59.9
30
35
40
45
50
55
60
65
70
75
Nov-12 Feb-13 May-13 Aug-13 Nov-13 Feb-14 May-14
Productive Capacity
Current Conditions
Future Expectations
Productive Capacity
Jul-13 Feb-14 Mar-14 Apr-14 May-14 Jun-14 Jul-14
Current Conditions 55.4 56.1 57.4 60.7 61.5 60.9 59.9
Future Expectations 68.8 60.0 67.5 70.7 69.6 68.9 68.9
“It is a slack season for sugar industries.”
Food Products manufacturing company
“The production capacity is on lower side in
summer.” Agricultural company
20. Spitzzeile Titel20
w
Optimism for hiring
fell to the lowest
since December
2013.
The Employment Indicator declined for the second
month in a row to 50.5 in July from 51.1 in June.
21. MNI India Business Report - July 2014 21
After falling to a record low level at the start of the
year, Order Backlogs have subsequently trended
upwards, showing signs of a revival in demand.
However, in July, fewer companies reported higher
backlogs, although they still expected to see growth
over the coming three months.
The Order Backlogs Indicator fell 12.1% to 47.4 in
July from 53.9 in June, surprisingly lower than the
same period a year earlier. The decline was led mainly
by manufacturing companies as the proportion of
those whose order backlogs rose in July more than
halved as compared with the previous month.
Companies expected Order Backlogs to remain
broadly the same over the next three months. The
Future Expectations Indicator rose very slightly to
52.0 in June from 51.7 in the previous month,
although was significantly above the outturn of 43.6
seen in July a year ago.
Order Backlogs
Contract Significantly
47.4
25
30
35
40
45
50
55
60
65
Apr-13 Jul-13 Oct-13 Jan-14 Apr-14 Jul-14
Order Backlogs
Current Conditions
Future Expectations
Order Backlogs
Jul-13 Feb-14 Mar-14 Apr-14 May-14 Jun-14 Jul-14
Current Conditions 49.4 39.8 50.0 55.4 49.0 53.9 47.4
Future Expectations 43.6 40.1 55.4 56.7 52.1 51.7 52.0
“We received fewer orders and hence even
fewer backlogs.” Software services company
“Due to higher orders, our backlogs will be
up.” Industrial machinery manufacturing
company
22. MNI India Business Report - July 201422
The Employment Indicator measures whether
companies have an adequate number of employees,
and even though the majority of companies continued
to say that the size of their workforce was “just right”,
optimism fell to the lowest since December 2013.
The Employment Indicator declined to 50.5 in July
from 51.1 in June, mainly led by services and
manufacturing companies. The latter decreased to the
50 level that separates whether companies have too
many or too few employees. In contrast, construction
companies boosted their hiring for the first time in
three months in line with a pick-up in their production.
Fewer companies were confident about hiring in the
next three months in spite an expectation of improved
demand in the upcoming festive season. The
Expectations Indicator fell to 52.4 in July compared
with 53.8 in the previous month. The indicator rose
only for construction companies with manufacturing
and services less optimistic than a month earlier.
Employment
Lowest Since December
50.5
40
42
44
46
48
50
52
54
56
58
60
Apr-13 Jul-13 Oct-13 Jan-14 Apr-14 Jul-14
Employment
Current Conditions
Future Expectations
Employment
Jul-13 Feb-14 Mar-14 Apr-14 May-14 Jun-14 Jul-14
Current Conditions 51.3 50.8 52.1 51.7 52.1 51.1 50.5
Future Expectations 53.6 57.5 53.3 52.0 51.5 53.8 52.4
“Due to the rainy season, business is down so
we are planning to cut employment in the
next three months.” Surface Transportation
company
23. MNI India Business Report - July 2014 23
The Indicator for the Inventory level of Finished Goods
rose for the second month in a row to 55.9 in July
from 54.5 in June. The trend of falling and rising
stocks during the early part of the financial year was
partly seasonal, as many companies initially draw
down their existing stock levels and then rebuild them
in anticipation of higher demand during the festival
season later in the year.
Companies expected inventories to expand in the next
three months to the highest since March. The
Expectations Indicator rose 4.4% to 54.8 in July from
52.5 in June, led mainly by manufacturing companies
to meet higher anticipated demand.
Between June and July, the proportion of construction
companies who expected inventories to rise more
than halved, in line with their weaker demand
expectations over the coming months.
Inventories
Highest Since April
55.9
25
30
35
40
45
50
55
60
65
70
Apr-13 Jul-13 Oct-13 Jan-14 Apr-14 Jul-14
Inventories
Current Conditions
Future Expectations
Inventories
Jul-13 Feb-14 Mar-14 Apr-14 May-14 Jun-14 Jul-14
Current Conditions 55.9 64.9 57.2 60.0 50.9 54.5 55.9
Future Expectations 35.5 53.5 58.8 51.3 49.0 52.5 54.8
“There are higher inventories due to the rainy
season, slowing down sale of goods.”
Construction company
“Both finished goods and raw material
inventories have gone up because of the
rains.” Furnishings company
24. MNI India Business Report - July 201424
Having suffered with high input costs over the past
year, companies saw some relief in July as the Input
Prices Indicator hit a series low, although remained in
expansion.
The Input Prices Indicator fell to 60.4 in July from
62.6 in June and was considerably below the outturn
of 79.6 recorded in the same period a year earlier.
Apart from construction companies, both
manufacturing and services companies reported an
easing in input price pressures compared with the
previous month, although those reporting higher input
costs still outnumbered panellists reporting lower
prices.
Even though current prices eased, companies were
apprehensive about prices over the next three months
as poor monsoon and violence in Iraq are expected to
impact food and fuel prices. Expectations for Input
Prices in three months’ time rose for the first time in
five months in July to 59.8 compared with 56.2 in
the previous month. The month’s rise pushed the
indicator to the highest in four months, although was
19.2% below the level recorded in July 2013.
Input Prices
Series Low
60.4
45
50
55
60
65
70
75
80
85
Apr-13 Jul-13 Oct-13 Jan-14 Apr-14 Jul-14
Input Prices
Current Conditions
Future Expectations
Input Prices
Jul-13 Feb-14 Mar-14 Apr-14 May-14 Jun-14 Jul-14
Current Conditions 79.6 73.0 66.0 66.1 62.2 62.6 60.4
Future Expectations 74.0 72.0 64.0 58.0 57.8 56.2 59.8
“Raw material prices have come down.”
Speciality Chemicals manufacturing company
25. MNI India Business Report - July 2014 25
The Prices Received Indicator declined to 54.9 in July
from 55.6 in June, and was significantly below the
outturn of 67.1 seen in the same month a year earlier.
The prices companies charge have remained elevated
over the past year, however they have eased somewhat
since the start of the year, with the three month trend
gradually easing.
The increase in the Prices Received Indicator over the
past year has been closely matched by the official
inflation data. Latest data showed that wholesale
price inflation eased to 5.4% in June from 6% in May,
led by a decline in food and fuel price inflation.
Expectations for Prices Received in three months’
time declined to the lowest since June 2013 to 55.5
in July compared with 57.2 in the previous month.
For the first time in 13 months, construction
companies expected prices charged to contract. The
indicator was above the 50 level for manufacturing
and services companies, although latter were less
optimistic as compared with the previous month.
Prices Received
Lowest Since March
54.9
30
35
40
45
50
55
60
65
70
75
80
Nov-12 Feb-13 May-13 Aug-13 Nov-13 Feb-14 May-14
Prices Received
Current Conditions
Future Expectations
Prices Received
Jul-13 Feb-14 Mar-14 Apr-14 May-14 Jun-14 Jul-14
Current Conditions 67.1 56.2 52.2 56.8 55.6 55.6 54.9
Future Expectations 73.7 61.2 56.6 59.8 57.4 57.2 55.5
3%
4%
5%
6%
7%
8%
9%
30
40
50
60
70
Jan-13
Mar-13
May-13
Jul-13
Sep-13
Nov-13
Jan-14
Mar-14
May-14
Jul-14
Prices Received and Wholesale Price Inflation
MNI Prices Received
Wholesale Price Inflation y/y % (RHS)*
*Source: Office of the Economic Advisor, India
“Because of competition, we have reduced
our prices.” Heavy Construction company
“Due to lower occupancy, we have reduced
prices of our services.” Hotels Group
26. MNI India Business Report - July 201426
Companies’ financial health improved for the fourth
month in a row to the highest since September 2013.
The Financial Position Indicator increased slightly to
70.3 in July from 69.3 in the previous month as the
majority of companies said that their financial position
was better or the same compared with the previous
month. The indicator has trended upwards since the
start of the survey and in the quarter ending June, it
hit a series high at 69.1, 1.3% above the reading of
68.2 in the previous quarter.
The BSE benchmark Sensex which has been on a
record breaking spree over the last three months,
pulled back slightly after a lacklustre budget speech
by the new government. The government unveiled its
plans to boost economic growth and open sectors to
attract investments but a lack of detail spooked
investors with the Sensex closing at 25,377.99 on
July 16. More recently Asian markets have tumbled
owing to tensions in Iraq and investors are also
cautious of the Federal Reserve’s move to phase out
quantitative easing and the risk of an earlier hike in
rates.
Companies’ expectations about their future Financial
Position have also trended higher since last year. In
July, companies’ expectations were broadly stable at
76.9 compared with 76.5 in June.
Financial Position
Highest Since September
70.3
45
50
55
60
65
70
75
80
85
90
Nov-12 Feb-13 May-13 Aug-13 Nov-13 Feb-14 May-14
Financial Position
Current Conditions
Future Expectations
Financial Position
Jul-13 Feb-14 Mar-14 Apr-14 May-14 Jun-14 Jul-14
Current Conditions 57.6 69.3 67.2 68.9 69.1 69.3 70.3
Future Expectations 73.3 77.2 76.1 79.6 79.0 76.5 76.9
“Due to economic revival and more demand
for our products, financial position is better.”
Containers and Packaging manufacturing
company
“Margins have improved.” Apparel retailer
27. MNI India Business Report - July 2014 27
More companies reported that the interest rates paid
by them were lower compared with the previous
month, pushing the indicator to the lowest since
February 2013, the beginning of the data series.
The Interest Rates Paid Indicator fell 1.7% to 51.8 in
July from 52.7 in June. The indicator rose for both
manufacturing and construction sector companies
and was above the 50 expansion/contraction level,
while it reduced significantly for the fifth consecutive
month among service companies to a level below 50
for the first time in over a year.
While in June, 10.7% of companies surveyed reported
higher credit costs, in July this rose to 12.4%. In
contrast, the percentage of companies who reported
they faced the same interest rates decreased to 78.8%
in July from 83.9% in June.
The Reserve Bank of India kept the key policy rate
unchanged at 8% at its monetary policy meeting on
June 4, the first interest rate decision by the central
bank since the Bharatiya Janata Party won the general
election. The Modi government is seeking to strike the
right balance between reducing the budget deficit and
reining in high inflation, while at the same time
stimulating economic growth, which has fallen below
5% in the past two fiscal years. The RBI has
committed itself to limit consumer price inflation to
8% by January 2015 but has said that it is open to
easing policy should inflation fall faster than currently
anticipated.
Interest Rates Paid
Hits a Series Low
51.8
45
50
55
60
65
70
75
Feb-13 May-13 Aug-13 Nov-13 Feb-14 May-14
Interest Rates Paid
Current Conditions
Future Expectations
Interest Rates Paid
Jul-13 Feb-14 Mar-14 Apr-14 May-14 Jun-14 Jul-14
Current Conditions 68.6 67.3 57.6 55.3 52.3 52.7 51.8
Future Expectations 65.9 60.7 52.8 50.7 46.1 50.0 46.4
Expectations for Interest Rates Paid remained elevated
throughout most of last year with the indicator hitting
a record high in June 2013, although it has trended
down since November. This month, a smaller
proportion of companies expected to see higher or the
same credit costs in the next three months. The
Expectations Indicator fell by 7.2%, very close to the
series low, to 46.4 in July from 50.0 in June.
28. Spitzzeile Titel28
w
Companies felt the
exchange rate was
benefiting them in
July.
The Effect of Rupee Exchange Rate Indicator rose by
3.4% to a level above 50.
29. MNI India Business Report - July 2014 29
After slipping below the 50 expansion/contraction
level in the previous month, the Effect of the Rupee
Exchange Rate Indicator rose to 51.1 in July, as fewer
companies reported that the exchange rate was
hurting their operations.
Businesses are asked whether the exchange rate is
helping or hurting their company and a value above
50 shows more firms reported that it was helping,
while a reading below 50 shows the exchange rate
was hurting.
The indicator has moved sharply over the past year in
line with the movement in the exchange rate. It fell
into contraction a year ago in line with massive capital
outflows due to concerns the US Federal Reserve
would start tapering Quantitative Easing earlier than
expected. It has since recovered along with the rupee’s
appreciation, helped by a lower current account deficit
and large foreign capital inflows, not least due to the
RBI’s proactive role. In July, the indicator was 13.3%
above the same period a year ago.
The appreciation in the currency over the past few
months has helped the majority of Indian companies
due to their heavy dependence on imports of fuel and
other raw materials. The rupee is 1.2% above the
same period a year ago.
Companies expected the rupee to help their businesses
in the coming three months, although concerns over
oil prices due to increased violence in Iraq fuelled
worries among some companies. The Expectations
Indicator declined for the first time since December
2012 to 55.1 in July compared with 57.5 in the
previous month, the lowest since April.
Effect of Rupee Exchange Rate
Helps Businesses
51.1
20
30
40
50
60
70
80
90
Nov-12 Feb-13 May-13 Aug-13 Nov-13 Feb-14 May-14
Effect of Rupee Exchange Rate
Current Conditions
Future Expectations
Effect of Rupee Exchange Rate
Jul-13 Feb-14 Mar-14 Apr-14 May-14 Jun-14 Jul-14
Current Conditions 45.1 44.2 40.8 46.4 50.8 49.4 51.1
Future Expectations 55.8 45.2 45.5 54.4 56.4 57.5 55.1
0.010
0.016
0.022
10
20
30
40
50
60
70
80
90
Jan-13
Mar-13
May-13
Jul-13
Sep-13
Nov-13
Jan-14
Mar-14
May-14
Jul-14
Exchange Rate
MNI Effect of Rupee Exchange Rate
US Dollar versus Indian Rupee (RHS)*
*Source: Reuters
30. MNI India Business Report - July 201430
The indicator measuring supplier delivery times
declined by 1.8% to 53.5 in July from 54.5 previously
as fewer companies reported lengthening of their
supplier delivery times.
Construction companies reported unchanged delivery
times with the indicator remaining at the neutral 50
level. Manufacturers continued to report an expansion
in delivery times.
Companies expected their Supplier Delivery Times to
lengthen to 53.3 in July over the next three months,
albeit slower from the previous month’s record of
56.8. Both manufacturing and construction
companies expected supplier delivery times to expand,
although slower than the previous month.
Supplier Delivery Times
Lowest Since May
53.5
30
35
40
45
50
55
60
65
Apr-13 Jul-13 Oct-13 Jan-14 Apr-14 Jul-14
Supplier Delivery Times
Current Conditions
Future Expectations
Supplier Delivery Times
Jul-13 Feb-14 Mar-14 Apr-14 May-14 Jun-14 Jul-14
Current Conditions 57.1 55.6 53.2 52.9 51.2 54.5 53.5
Future Expectations 50.9 56.2 56.3 56.2 54.9 56.8 53.3
31. MNI India Business Report - July 2014 31
The indicator measuring the Availability of Credit
increased in July to 61.7 from 61.1 in June, the
highest since April, when the series hit a record high
level.
The Availability of Credit Indicator has trended
upwards since the summer of 2013 and the rise on
the month puts the indicator well above the level in
the same period a year ago. For the quarter ending
June, optimism about credit availability hit the highest
level on record.
The RBI cut the statutory liquidity ratio – the
mandatory amount of bonds lenders must keep with
the central bank by 50 basis points to 22.5% of
deposits in June, in order to raise the availability of
credit. There was a rise in the proportion of service
companies who registered an increase in credit
availability while a higher proportion of construction
companies reported the same credit availability
compared with the previous month. In contrast, fewer
manufacturing companies reported an improvement
in their credit availability.
Businesses expected credit availability to improve in
the next three months as the Future Expectations
Indicator rose to 65.8 from 63.7 in the previous
month, the highest since April. Manufacturing and
service companies expected credit conditions to
improve in the coming three months while construction
firms were less optimistic.
Availability of Credit
Second Monthly Rise
61.7
30
35
40
45
50
55
60
65
70
Nov-12 Feb-13 May-13 Aug-13 Nov-13 Feb-14 May-14
Availability of Credit
Current Conditions
Future Expectations
Availability of Credit
Jul-13 Feb-14 Mar-14 Apr-14 May-14 Jun-14 Jul-14
Current Conditions 57.1 54.9 59.6 63.1 60.4 61.1 61.7
Future Expectations 60.9 54.8 59.5 67.8 63.0 63.7 65.8
“Due to our better performance, we have
good chances of getting credit.”
Pharmaceuticals manufacturing company
“Banks are ready to give credit.” Construction
company
32. Spitzzeile Titel32
A selection of comments from the panel of
businesses surveyed over the past month.
What the Panel Said
33. “There are higher inventories due to the rainy season,
slowing down sale of goods.” Construction company
“We are trying to increase the headcount.” Clothing and
accessories manufacturing
“Due to our better performance, we have good chances
of getting credit.” Pharmaceuticals manufacturing
company
“Production was low because of unavailability of raw
material.” Food products manufacturing company
“Both finished goods and raw material inventories have
gone up because of the rains.” Furnishings company
“We received fewer orders and hence even lesser
backlogs.” Software services company
“Global demand is weak, hence our export orders
suffer.” Diversified Industrials manufacturing company
“Banks are ready to give credit.” Construction company
“It is a slack season for sugar industries.” Food Products
manufacturing company
“The production capacity is on lower side in summer.”
Agricultural company
“Production will be higher as festival season is
approaching in the coming 3-4 months.” Real Estate
Holding and Development company
“Last month many people left our organisation.”
Chemicals manufacturing company
“We are opening more branches so we need more
employees.” Insurance company
“Higher production will be in the coming months as it’s
the peak season for tea business.” Agricultural company
“We expect lower new orders because of the monsoon
season.” Speciality chemicals manufacturing company
“We got some orders in advance so the production will
be on a higher side in the coming three months.”
Industrial machinery manufacturing company
“Production was weaker due to lack of manpower.”
Heavy construction company
“Export Orders are low due to weaker demand from
China.” Iron and steel manufacturing company
“We expect higher foreign demand due to our stronger
marketing network.” Industrial machinery
manufacturing company
“Due to lower occupancy, we have reduced prices of
our services.” Hotels group
“Our production levels were low due to breakdown of
machinery.” Utilities company
“We expect rupee to be stronger as compared with US
dollar, hence beneficial for us.” Electrical components
manufacturing company
“We expect a cut in rate of interest by the RBI.” Real
Estate Holding and Development company
“Business conditions are slowly but gradually
improving.” Industrial machinery manufacturing
company
“Due to the rainy season, the business is down so we
are planning to cut down employment in the next three
months.” Surface Transportation company
“Due to political stability, we have lot of expectations
from the government.” Real Estate Holding and
Development company
“Raw material prices have come down.” Speciality
Chemicals manufacturing company
“Because of competition, we have reduced our prices
charged.” Heavy Construction company
MNI India Business Report - July 2014 33
36. MNI India Business Report - July 201436
Historical Records
2012 - Current
Minimum Maximum Mean Median
MNI India Business Indicator
Current Conditions 47.5 70.0 60.1 60.6
Future Expectations 49.7 80.3 68.3 69.8
Production
Current Conditions 41.0 67.3 59.0 59.7
Future Expectations 41.3 76.8 65.6 69.3
New Orders
Current Conditions 39.7 69.1 57.9 60.9
Future Expectations 40.4 78.6 66.6 69.0
Export Orders
Current Conditions 41.3 67.4 57.4 59.3
Future Expectations 45.2 75.5 63.8 65.4
Productive Capacity
Current Conditions 41.0 64.0 55.7 57.4
Future Expectations 40.7 70.7 62.4 65.2
Order Backlogs
Current Conditions 35.6 59.3 48.5 48.8
Future Expectations 32.8 59.6 47.5 48.8
Employment
Current Conditions 48.9 54.1 51.6 51.8
Future Expectations 49.5 57.5 52.7 52.3
Inventories
Current Conditions 47.8 64.9 55.2 55.2
Future Expectations 31.0 59.5 50.6 52.9
Input Prices
Current Conditions 60.4 79.6 68.7 67.3
Future Expectations 56.2 74.9 66.2 66.4
Prices Received
Current Conditions 41.5 67.1 54.9 55.6
Future Expectations 45.1 73.7 57.7 57.3
Financial Position
Current Conditions 53.4 72.3 63.6 65.2
Future Expectations 51.6 83.3 70.5 73.8
Interest Rates Paid
Current Conditions 51.8 73.2 61.6 62.7
Future Expectations 46.1 71.7 58.6 57.9
Effect of Rupee Exchange Rate
Current Conditions 30.9 77.8 50.3 47.8
Future Expectations 30.1 75.5 51.4 51.8
Supplier Delivery Time
Current Conditions 51.2 59.6 54.2 53.4
Future Expectations 39.5 59.0 53.6 54.9
Availability of Credit
Current Conditions 41.1 63.1 54.5 55.7
Future Expectations 40.9 67.8 57.8 58.9
37. MNI India Business Report - July 2014 37
Historical Records - Quarterly
Q4 13 Q1 14 Q2 14 Quarterly Change Quarterly % Change
MNI India Business Indicator
Current Conditions 60.7 62.4 66.0 3.6 5.8%
Future Expectations 69.8 70.5 79.3 8.8 12.5%
Production
Current Conditions 60.8 63.7 61.4 -2.3 -3.6%
Future Expectations 66.6 69.7 72.2 2.5 3.6%
New Orders
Current Conditions 60.9 62.5 63.5 1.0 1.6%
Future Expectations 67.8 67.9 77.5 9.6 14.1%
Export Orders
Current Conditions 58.3 62.9 63.4 0.5 0.8%
Future Expectations 62.1 67.2 70.1 2.9 4.3%
Productive Capacity
Current Conditions 56.9 57.2 61.0 3.8 6.6%
Future Expectations 62.6 63.9 69.7 5.8 9.1%
Order Backlogs
Current Conditions 43.3 41.8 52.8 11.0 26.3%
Future Expectations 45.3 43.6 53.5 9.9 22.7%
Employment
Current Conditions 50.1 51.6 51.6 0.0 0.0%
Future Expectations 50.9 54.7 52.4 -2.3 -4.2%
Inventories
Current Conditions 51.0 61.4 55.1 -6.3 -10.3%
Future Expectations 52.9 57.3 50.9 -6.4 -11.2%
Input Prices
Current Conditions 69.4 69.6 63.6 -6.0 -8.6%
Future Expectations 68.1 68.6 57.3 -11.3 -16.5%
Prices Received
Current Conditions 57.9 56.3 56.0 -0.3 -0.5%
Future Expectations 59.0 59.6 58.1 -1.5 -2.5%
Financial Position
Current Conditions 64.6 68.2 69.1 0.9 1.3%
Future Expectations 72.2 74.9 78.4 3.5 4.7%
Interest Rates Paid
Current Conditions 67.6 61.8 53.4 -8.4 -13.6%
Future Expectations 64.1 57.1 48.9 -8.2 -14.4%
Effect of Rupee Exchange Rate
Current Conditions 37.9 43.1 48.9 5.8 13.5%
Future Expectations 38.9 44.8 56.1 11.3 25.2%
Supplier Delivery Time
Current Conditions 53.3 54.4 52.9 -1.5 -2.8%
Future Expectations 54.6 54.7 56.0 1.3 2.4%
Availability of Credit
Current Conditions 53.2 57.1 61.5 4.4 7.7%
Future Expectations 58.2 56.1 64.8 8.7 15.5%
38. MNI India Business Report - July 201438
Methodology
MNI India Business Sentiment is a monthly poll of
Indian business executives at companies listed on
BSE (formerly known as the Bombay Stock Exchange).
Companies are a mix of manufacturing, service,
construction and agricultural firms.
Respondents are asked their opinion on whether a
particular business activity has increased, decreased
or remained the same compared with the previous
month as well as their expectations for three months
ahead, e.g. Is Production Higher/Same/Lower
compared with a month ago?
A diffusion indicator is then calculated by adding the
percentage share of positive responses to half the
percentage of those respondents reporting no change.
An indicator reading above 50 shows expansion,
below 50 indicates contraction and a result of 50
means no change.
Data is collected via telephone interviews. More than
200 companies are surveyed each month.
39. Insight and data for better decisions
Discovering trends in Emerging
Markets
MNI’s Emerging Markets Indicators explore attitudes, perspectives and
confidence in Russia, India and China. Our data and monthly reports present an
advance picture of the economic landscape as perceived by businesses and
consumers.
Our indicators allow investors, economists, analysts, and companies to identify
economic trends and make informed investment and business decisions. Our data
moves markets.
www.mni-indicators.com
