The First Business Confidence Index for SMEs Show Buoyancy in the Sector: CII Survey

July 26, 2010; CII has launched a quarterly survey on SME Business Confidence Index (BCI), which is based on a list of 14 exhaustive outlook indicators, including gross sales, new orders, input costs, credit availability, investments, export, capacity utilization and net profit.

In its first issue of the quarterly survey for July-Sep 2010, the CII survey has reported bullish sentiments of SMEs. After suffering heavily in terms of investment, output and employment during the global financial crisis, SMEs are showing strong signs of consolidation.

All but one constituent of overall BCI in the CII survey showed favorable change in the outlook scenario for the current quarter. In fact, gross sales, new orders, and capacity utilization recorded a value of BCI greater than 75, indicating an expectation of a significantly high favorable change to the extent of more than 10% during the current quarter over the previous one. As many as 10 outlook indicators reported a BCI in the range of 51-74, which meant an expectation of a favorable change to the extent of 1-10%. Employment, capacity expansion along with exports assumed a value of BCI greater than 70, riding on brightening demand outlook.

In the CII survey, credit availability, credit cost and net profit margin held the value of BCI in the rage of 55-70. Much of the buoyancy in credit availability has been attributed to the growing confidence of financial institution in SMEs, which had touched a low during the financial crisis. But the survey cautioned that there is a little scope for complacency in promoting greater bank credit access to the sector, given that around 14 lakh SMEs, forming about 90% of the country’s industrial units, are able to access less than 10% of bank loans.

Further, SME firms are found to expect favorable impact on credit cost front, even in the milieu when interest rates at the economy level have an upward bias. This, among other reasons, has been linked to the implementation of Base Rate policy by RBI from 1st July 2010, which is stated to benefit the small and medium businesses significantly. Improvement in credit ratings with strengthening of the recovery process is given another major reason for SMEs being spared from the rising interest cost burden as of now.

On the negative side, CII survey has found SME firms expecting unfavorable movement in costs of inputs during the current quarter, as the BCI for overall input costs stood at a low of 29.2. Yet, this failed to dampen the mood of the SMEs as the net profit margin recoded an impressive BCI of 66.5, thanks to the robust demand prospects.

As regards the major difference shown by the industrial and services sectors of SMEs, CII survey has found the former to be more optimistic about new orders and export prospects, whereas latter to generate more revenues and net profit.

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