India’s business confidence dipped in the second quarter of the current financial year after three quarters of growth, as per NCAER’s Business Expectations Survey, due to global uncertainties and new GST reforms.
India’s business confidence eased in the second quarter of 2025–26 after showing steady improvement for three consecutive quarters, according to the latest Business Expectations Survey (BES) released by the National Council of Applied Economic Research (NCAER). The survey attributes the decline largely to heightened global uncertainties and domestic policy transitions, including new Goods and Services Tax (GST) reforms that took effect in late September.
The Business Confidence Index (BCI) fell to 142.6 in the July–September quarter, down from 149.4 in the first quarter. However, confidence levels remain higher than the same period a year earlier, when the index stood at 134.3, indicating that business optimism, though tempered, remains resilient. The 134th round of the BES covered 484 companies across six major cities, and was conducted in September 2025 – just days after the United States announced new tariffs on Indian exports.
The NCAER study noted that the quarter was marked by a series of policy developments. In addition to the US tariffs, Washington also increased H1-B visa fees and imposed duties on branded and patented pharmaceuticals, further rattling Indian exporters. On the domestic front, the GST Council reduced the number of tax slabs from four to three and rationalised rates, reforms expected to show positive effects in the coming quarters.
“Overall, the share of positive responses remained above 50 per cent in all four components of the index, signalling a relatively slower growth momentum,” said project leader Professor Bornali Bhandari. “The macro indicators were more negatively affected than the firm-level sentiments.”
Large Firms Hit Harder by Global Shocks
The survey reveals that the impact of global headwinds has been uneven across firm sizes. The BCI for micro, small and medium enterprises (MSMEs) rose slightly from 137.1 in the first quarter to 138.2 in the second, suggesting steady confidence levels despite the external uncertainty. In contrast, large firms – those with annual turnovers exceeding ₹100 crore – saw their BCI plunge from 171.6 to 149.9. The data suggest that larger firms, being more export-oriented, are more exposed to international risks. Only 32 per cent of MSMEs surveyed were exporters, compared to 62 per cent of large firms.
Sectoral and regional variations were also evident. The services sector reported improved sentiment, rising from 132.8 to 137.8, while the manufacturing sectors – including consumer durables, non-durables, and capital goods – experienced declines. Regionally, business confidence strengthened in the North and East, with their BCIs climbing to 163.7 and 161.9 respectively, while it deteriorated sharply in the South and West, falling to 134.8 and 110.2.
Despite the moderation, production expectations remain upbeat. About 82 per cent of firms expect production to rise in the next six months, up from 79 per cent in the previous quarter. Yet nearly half of them – 44 per cent – believe the increase will be modest, limited to between zero and five per cent. Similarly, 73 per cent of firms foresee an increase in exports of final products, compared with 67 per cent in the first quarter, though almost half expect only marginal growth.
Domestic demand also shows cautious optimism. The share of firms anticipating higher domestic sales rose from 79 to 83 per cent, while those expecting new orders fell from 71 to 67 per cent, indicating a patchy recovery. Expectations about pre-tax profits weakened, with the proportion of firms forecasting profit growth slipping to 54 per cent from 61 per cent in the previous quarter. Around 10 per cent of respondents were uncertain about their profit outlook.
Cost pressures, too, are on the minds of Indian businesses. Nearly 49 per cent of respondents expect input costs for raw materials to rise, with the majority projecting modest increases of up to five per cent. About 47 per cent anticipate higher labour costs, and one-third foresee rising electricity costs, though two-thirds expect power rates to remain stable. This combination of muted demand and steady cost increases could squeeze margins in the short term.
Hiring Slows but Wages Show Signs of Recovery
The NCAER survey points to stagnation in India’s labour markets, reflecting the cautious stance of employers amid policy and trade uncertainty. Over 70 per cent of firms expect no change in their hiring plans for the next six months. Only 20 per cent anticipate increasing their intake of permanent workers, while 29 per cent foresee hiring more casual or temporary staff, suggesting that firms prefer flexible labour arrangements during uncertain times.
For managerial and skilled positions, 25 per cent of firms expect to add workers, while 72 per cent expect no change. Among unskilled labour, hiring intentions remain subdued, with 22 per cent of firms planning to expand their workforce.
Yet there is a silver lining. Sentiments about wages are relatively upbeat. Nearly half of all firms expect wages to rise for both skilled and unskilled workers in the coming six months. Analysts say this points to a “soft labour market but improved wage outlook”—companies are cautious about expanding their workforce but are willing to pay more to retain or motivate existing employees.
The BES also indicates that despite the moderation in optimism, firms remain broadly positive about India’s economic trajectory. A majority – 66.5 per cent – expect overall economic conditions to improve in the next six months, though this is down from 73 per cent in the previous quarter. The share of firms that consider the investment climate positive has also declined to 55 per cent, from 60 per cent earlier.
The survey concludes that while the second quarter’s moderation reflects temporary global turbulence and domestic adjustments, India’s underlying business sentiment continues to be resilient. With GST simplification now in effect and global supply chains gradually realigning, NCAER expects confidence to stabilise in the latter half of the fiscal year.
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