New Delhi: Business confidence for the January-March quarter of 2017 plunged to a 31-quarter low as severe cash crunch heightened the degree of uncertainty amongst companies and dented their optimism, says a survey. The Dun & Bradstreet Composite Business Optimism Index stood at 65.4 during the first quarter of 2017, a decrease of 23.9% as compared to the January-March period of 2016.

“Business confidence for the first quarter of 2017 plunged to a 31-quarter low as India Inc grapples with disrupted demand and production following the government’s sudden decision to withdraw high-value old currency notes," said Kaushal Sampat president and managing director Dun & Bradstreet – India.

He further said that while the move will bring long-term benefits by reducing the size of the shadow economy and enhancing tax revenues, the immediate impact has been demand destruction due to severe cash crunch, heightened degree of uncertainty amongst businesses and dented confidence.

Further, the low productivity in the winter session of Parliament and the uncertainty around the implementation date of goods and services tax (GST) are testing the confidence of business community.

Also read: Cash crunch leads to biggest drop in private sector activity since October 2013

“The cash shortages in the economy have led to a reduction/deferral in purchase decisions with rural retail being impacted more compared to the urban segment. This has triggered a sharp fall in optimism with regard to net sales and net profits for first quarter of 2017," Sampat said.

Going forward, the extent and speed with which the government and the Reserve Bank of India (RBI) re-monetise the economy would have a major influence on the way business sentiment shapes up.

“The measures that will be announced in the forthcoming Union Budget in the area of direct taxation and public investment along with the speed of transmission of lower interest rates will play a very important role in reviving confidence," he added.

The index, measures the pulse of the business community and is arrived at on the basis of a quarterly survey of business expectations.

For calculating the composite BOI, each of the six parameters—net sales, net profits, selling prices, new orders, inventories and employee levels—is assigned a weight. The parameter weights are then applied to these ratios and the results aggregated to arrive at the Composite Business Optimism Index.