CII-IBA Financial Consitions Index goes up in Q2
Published: Aug 02, 2017
By TIOLCORPLAWS News Service
NEW DELHI, AUG 02, 2017: The Confederation of Indian Industry (CII) theme for 2017-18, 'India Together: Inclusive Ahead. Responsible' emphasizes Industry's role in partnering Government to accelerate India's growth and development. The focus is on key enablers such as job creation, skill development and training, affirmative action; women parity, new models of development; sustainability, corporate social responsibility, governance and transparency.
Serving as a reference point for Indian industry and the international business community, the CII-IBA Financial Conditions Index for Q2 FY 2017-18 recorded a substantial change from 56.9 in the first quarter of FY2017-18 to 71.4 in the current quarter owing to expectation of improvement in the overall financial conditions in the economy. This signals that majority of the respondents have indicated improvement in the overall economic conditions of the country.
This improvement in the expectation of banks and financial institutions is captured in the cost of funds index, economic activity index, external financial linkages index and funding liquidity index.
Implementation of GST marked a benchmark in the development of the economy of the country. The GST is arguably one of India’s most significant and ambitious reform ever attempted and it is believed that the impact of GST on Indian Economy is going to be significant and its implementation will boost the Indian GDP by 1-1.5% in the long run.
In terms of quarterly expectation, cost of funding index has improved sharply compared to previous quarter. On the short-term interest rates, reflected by the interbank call rate & 3 month bank CD rate, 65.5% of the respondents expect improvement during the Q2 (2017-18) compared to only 19.4% in the previous quarter. Since the system is in surplus liquidity mode, the short term interest rates are expected to remain benign in this quarter.
In terms of the long term interest rates, reflected by yield on the 10 year government bond, 82.8% of the respondents expect drop in yield. The yield on 10 year government bond has also dropped from 6.68% in end march 2017 to 6.51% in end June 2017. Further, the RBI had conducted the sale of securities through Open Market Operations (OMOs) to help in creating a balance in the liquidity position in the market.
According to a report by central bank, the primary issuance in the corporate bond market increased from 1.74 lakh crore in 2008-09 to 6.7 Lakh crore in 2016-17 and the respondents expect the trend to continue.
The Economic Activity Index stands at 68.1 in Q2 FY 2017-18 reflecting the positive outlook of Indian economy. The Indian economy is expected to see gradual improvement in growth numbers primarily driven by consumption.