MUMBAI -- Indian Prime Minister Narendra Modi seems to be losing his Midas touch if the March MNI India Business Sentiment Indicator is anything to go by.
Despite the government making positive, business-friendly announcements in its annual Budget in February, the MNI India Business Sentiment Indicator for March was 63.0, down 4.8% from 66.2 in February, hitting the lowest level since April 2014. The indicator is a gauge generated from a monthly poll of Indian business executives at listed companies on the Bombay Stock Exchange.
Business sentiment worsened, despite measures by the government and the central bank to boost the economy. In its full Budget detailed on Feb. 28, the government announced increased infrastructure spending and measures to improve the ease of doing business, increase tax collection and curb black markets.
The Budget followed one interest rate cuts by the Reserve Bank of India earlier in the year. On Jan. 15, repo rate were cut to 7.75% from 8%. The central bank announced another surprise cut on March 4, bringing interest rates down to 7.5%.
The decline in sentiment was mainly led by construction companies, according to the MNI India Business Report. Manufacturing and services companies also posted falls.
"Business confidence, which was boosted following the general election last year has gradually fallen, with sentiment now at the lowest level since April 2014, the month prior to Modi's election," the report said.
"Confidence is now down 3.8% on the year and 5.7% below the average seen in 2014. In the three months to March, the MNI India BSI averaged 64.5, the lowest since the quarter ending March 2014."
The Production Indicator, which measures manufacturing output, declined 8.5% on the year, to the lowest level since May 2014, while the New Orders Indicator, which is a key signal of business demand fell to the lowest level since June 2013.
With demand relatively low, companies kept their workforce very close to the optimum level as reflected by the Employment Indicator which stood at 50.4 in March, down marginally from 50.3 in February.
The weakness of the rupee hurt businesses in March, but it has given Indian exporters a competitive advantage and the Export Orders Indicator picked up slightly, for the first time since August 2014.
The study also found companies less upbeat about the next three months as the Expectations Indicator fell to a four-month low of 74.9 in March from 75.3 in February.
The report said although the cut in key policy rates by the Reserve Bank of India did boost sentiment in the following month, the cut in March failed to make any positive impact and companies have reported "a further weakening in their financial positions".
"While there are a lot of positives out there for India, our survey suggests that economic growth peaked in the second half of 2014 and has subsequently eased," MNI Indicators chief economist Philip Uglow said. "Rate cuts and low inflation should help to underpin growth this year, although our latest survey cautions against getting too excited about the short-term growth outlook."