Election of new prime minister boosts business confidence in India

Expectations that India's newly elected pro-business prime minister Narendra Modi will take the necessary action to boost economic growth and create more jobs has driven Indian business confidence to new highs.

The MNI India Business Indicator rose to 69.2 in June from 67.0 in May, the highest level since the survey began in 2012, led by higher optimism among manufacturing companies, whose confidence rose to the highest level in 12 months.

There was a similarly bullish picture in the ThomsonReuters/INSEAD Asia Business Sentiment Survey, which shows consumer confidence in Asia's third largest economy had risen.

The manufacturing sector is set to be central to the new government’s plan for turning the economy around and the MNI survey shows they already sense positive changes ahead.

"Euphoria following Modi's landslide election win has no doubt helped to push business sentiment higher in June as corporates expect to see the new prime minister take swift action to bolster growth," said chief economist of MNI Indicators Philip Uglow.

“The Modi government has its work cut out to live up to the high expectations being placed upon it. While our data is consistent with a pick-up in the economy in the latest quarter, there is a clear danger that the recovery takes longer than many are expecting.”

Highest growth

Industrial production recorded the highest growth in 13 months and manufacturing output grew for the first time in three months.

Consumer price inflation eased to a three-month low in May.

There were fears that a below-normal monsoon would put upward pressure on food prices, making it challenging for the Reserve Bank of India to cut interest rates and for the government to kick-start the economy, the MNI survey said.

More broadly, the ThomsonReuters/INSEAD Asia Business Sentiment Survey showed that Asia’s top companies reported a bullish outlook in the second quarter of 2014 compared to the first three months despite worries over the global economy and rising costs.