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CII Business Confidence Index for SMEs

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CIOL Bureau
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NEW DELHI, INDIA: Following are the highlights of the CII Business Confidence Index for SMEs - Q2, 2011-12 (July to September 2011).

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Highlights

The overall Business Confidence Index (BCI) of SMEs for the quarter July to September 2011 is estimated at 57.2 on a scale of 0-100 (from the most unfavorable to the most favorable).

This is a decline from the BCI of last quarter estimated at 62.1 and on a Year-on-Year (Y-o-Y) basis decline from a value of 65.6.

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Also read: Challenges and needs of SMEs in India

In the SME industry, the services sector continues to expect bigger improvement compared to the industrial sector. Gross sales, new orders and capacity utilization recorded a value of BCI in excess of 70, indicating these variables are going to have a favourable effect on Indian SMEs this quarter. The trend has been continuing from the previous quarters.

Remaining variables - except input costs - credit cost for capacity expansion and working capital have values of BCI in the range of 51-74, Input Costs has remained below 30 but this quarter has seen a decline on a Y-o-Y basis, with inflation expected to grow higher.

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Much of the buoyancy in Gross sales is supported by strong domestic demand, as outlook on exports prospects for SMEs has come down significantly in the current quarter to 62.5 points from 70.1 points last quarter. Although increasing trade between Japan and Canada will help SME exporters, Rupee gaining against other major currencies has lead to decline in exports prospects.

Also read: SMEs to get exemption from capital gains tax

Employment prospects in SMEs look good with BCI value estimated at 70.7 points. This is an increase from the last quarter (70.4) but a decline from the last year’s value of 73.7.

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The credit availability for SME sector seems to be declining, there seems to be pessimism that the credit cost is not going to work in favour of the sector, with a decreasing value in the BCI.

Relatively low and declining value of BCI for cost of credit for capacity expansion is also a cause for concern. SMEs have had to pay higher interest rates because of a lot of fundamental issues and further increase in interest rates is only going to fuel the fire.

The Economic Advisory Council (EAC) is also concerned about the impact that is going to make on investments and it is likely to affect the future growth.

SMEs in the services sector enjoy edge over their counterparts in the Industrial sector in all aspects apart from the input costs.