Page 29 - CII ARTHA

OCTOBER 2025

Firms Upbeat on Growth and 49.0 per cent of respondents as the most important factor
Monetary Outlook influencing investment decisions, well ahead of policy
uncertainty (19.0 per cent), exchange-rate volatility (16.0 per
cent), and energy costs (15.0 per cent).
Business sentiment on GDP growth remains buoyant. Nearly
47.0 per cent of respondents expect real GDP growth above
6.5 per cent in FY26. The largest share (~26.0 per cent)
foresee growth between 6.5 and 6.75 per cent, while another Employment and Wage Growth
21.0 per cent anticipate even higher expansion, reflecting Remain Positive
broad-based confidence.
Improved business conditions are translating into job
On the monetary front, around 56.0 per cent of firms expect creation. Over 51.5 per cent of firms reported higher
the RBI to cut repo rate in the second half of FY26. One-third employment in H1:CY2025, and 47.0 per cent expect further
foresee a 25 basis point reduction, indicating faith additions in the second-half.
in contained inflation and a gradual shift towards a more
growth-supportive stance. Wage growth trends are also positive. In H1:CY2025, 69.3 per
cent of firms saw median wage growth of more than 5.0 per
cent, while 56.8 per cent expect the same in H2:CY2025. With
Domestic Demand Drives Growth; inflation subdued, the wage increases should bolster real
Exports Remain Steady incomes and consumption.

Domestic demand continues to be the primary growth driver. However, skill shortages persist. About 42.0 per cent of firms
About 57.0 per cent of firms reported higher demand in Q2FY26 reported moderate skill gaps among new hires in Q1 and
than in the previous quarter, and 64.0 per cent expect further Q2FY26, and 30.0 per cent experienced severe shortages.
improvement in Q3FY26. Nearly half (49.0 per cent) of respondents expect that
20.0-50.0 per cent of their workforce will need new skills
External demand has stabilised despite global headwinds. within three years due to AI adoption, underscoring the
Around 31.0 per cent of respondents saw higher exports in urgency of reskilling and workforce adaptation.
Q2FY26, while 47.0 per cent expect export to remain at the
same levels in Q3. This is consistent with trade data showing
6.2 per cent annual growth in goods exports during Ease of Doing Business and
April–August 2025. Reform Priorities

To mitigate the impact of recent US tariffs, 55.0 per cent of On the regulatory front, 40.0 per cent of firms reported no
firms are pursuing or planning supply chain diversification by change in compliance time over the past year, while 26.0 per
exploring new markets, adjusting sourcing patterns, or cent observed some reduction. Among the policy suggestions
increasing domestic procurement. to improve business sentiment, lower tax rates (33.0 per
cent) and faster approvals (28.0 per cent) were identified as
the most effective ways, followed by easier credit access
Profitability and Investment (14.0 per cent) and export incentives (11.0 per cent).
Indicators Improve
Respondents also emphasised the need for continued ease
Corporate profitability is on the rise. About 46.6 per cent of of doing business reforms, GST simplification, improved
firms reported improved profit margins in Q2FY26, and 53 per MSME financing, faster clearances, and sustained
cent expect further gains in Q3. infrastructure investment to maintain growth momentum.

Capacity utilisation is also strengthening. The share of firms
expecting utilisation above 80.0 per cent in the second half of Conclusion
calendar year 2025 rose to 34.0 per cent from 29.6 per cent
earlier, indicating readiness for expansion. The CII Business Confidence index for Q2FY26 reflects
measured optimism across Indian industry. With domestic
Investment sentiment remains steady. Nearly 48.0 per cent of demand strengthening, profitability improving, and
firms reported higher investment in first half of calendar year investment holding firm, India’s growth outlook remains
2025 (H1:CY2025) as compared to second half of last calendar robust. Continued reforms in ease of doing business, skilling,
year (2H:CY2024), with a similar proportion expecting further and trade competitiveness will be vital to sustain this
increases in second half of calendar year 2025 (H2:CY2025). momentum and translate business confidence into durable,
Demand conditions, both domestic and external, were cited by broad-based growth.

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