Business optimism has taken a beating in the June quarter compared to the first quarter of the current calendar year. This is a reversal of fortunes and hit by various unfavorable events or news such as the scam of Punjab National Bank and the slippage in the nation’s fiscal data. Dun and Bradstreet released a report saying that the second quarter’s business optimism dropped to 85 percent. This represented a fall of 6.6 percent from the first quarter that saw peaking at 91 percent in the same period.
Survey Held in March
Significantly, business optimism has been growing since the September quarter. The business optimism survey was held in March when the country had to face fraud cases like PNB’s Rs.130 billion scam. Also, the frauds and scams came at the most inopportune time since the public sector banks were already reeling under the pressures of managing the non-performing assets (NPAs).
Investors and businesses were naturally worried when top industrialists or businessmen escape to foreign countries after taking a hefty loan from the public sector banks. Vijay Mallya was already facing the charges of looting the public money and the latest scam involved Nirav Modi. These kinds of scams or frauds not only affect the bank’s performance but also the government’s performance as it would shift its focus from the main agenda. In the current month, ICICI Bank CEO also came under the clouds of suspicion due to a conflict of interest involving her husband’s company name in granting a loan to Videocon.
The report also pointed out the increased fiscal deficit, which was higher than the original estimation for the fiscal year 2018. Aside from that, the budget estimation for the next fiscal year also looked to be an elevated one. Therefore, there was a fear that it could lead to higher borrowings from the government side. As a result, the government is forced to fix its own balance sheet apart from the banks that are run by it, according to business standard.
There are also other factors that affected the business optimism for the second quarter. This included the compressing the low-cost trade finance citing the discontinuation of the letter of understanding. This followed after the PNB scam broke out. Aside from that, optimism dipped due to increased protectionism in the United States that makes the exporters jittery. This also led to nervousness and higher current account deficit.
Though business optimism dropped sharply on a quarter-over-quarter basis, it was higher than the last year. The optimism index expanded 7.6 percent in the second quarter to 85 percent from the previous year period. As far as the sectors were concerned, the intermediate goods sector was the most optimistic one.
Similarly, construction sector was the least optimism shown in the second quarter. In respect of sales, there was a drop of two percentage point in the number of people looking for the sales increase. In the same way, there was five percentage of fall in people expecting a higher net profit. As far as for order book, there was a drop of three percentage point in the number of people who think that their order book would keep growing.