Business sentiment in India softened in the second quarter of FY26 after three straight quarters of improvement, according to the NCAER Business Expectations Survey (BES) released on October 27. The Business Confidence Index (BCI) fell to 142.6 in Q2 from 149.4 in the previous quarter, reflecting the impact of both global uncertainties and domestic policy adjustments.
The survey, conducted in September 2025, found that sentiment was dampened by international headwinds — including the US decision to impose additional tariffs, steep hikes in H-1B visa fees, and duties on branded pharmaceutical products.
Domestically, firms cited GST rate rationalisation as a factor influencing business expectations as they adjusted to the new tax structure.
While the index remains higher than the same quarter last year (134.3 in Q2 FY25), the moderation signals a slower growth outlook, NCAER said in its report.
Confidence Components and Firm Trends
Three of the four BCI components — expectations of better economic conditions, improved financial position, and a positive investment climate — weakened in the latest round. However, capacity utilisation stayed robust, with 98 percent of firms reporting operations close to or above optimal levels.
Confidence among large firms declined more sharply, as they were more exposed to global policy shifts, while MSMEs reported stable but relatively lower confidence levels.
Hiring and Production Outlook
Employment expectations remained subdued: over 70 percent of firms said they did not plan to change hiring levels over the next six months, though a majority expected wages to rise modestly.
On the output side, optimism held steady. “The share of firms expecting production to increase in the next six months went up from 79 percent in Q1 to 82 percent in Q2. However, a significant share (44%) expected this increase to be between zero and five percent,” the survey noted.
The findings come amid expectations of slower growth in Q2 FY26, though the Reserve Bank of India continues to project GDP expansion near 7 percent, slightly lower than the previous quarter’s pace of 7.8 percent.
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