Business confidence dips

NEW DELHI, AUG. 21. A survey on business outlook by the National Council of Applied Economic Research (NCAER) has found that the Business Confidence Index (BCI), which had been consistently moving upward since April 2003 and reached a peak in April 2004, finally tumbled in July.

The NCAER, in its latest quarterly report, said "The change in Government at the Centre in May 2004 and subsequently the release of the United Progressive Alliance's agenda of governance, Common Minimum Programme, appeared to have changed the business sentiment considerably across the country".

What NCAER has not specifically mentioned is that the survey was conducted during a period of political uncertainty and the initial days of the UPA when corporate India was concerned about the likely shape of the new Government's economic policies. Besides, the initial fears of another major drought hitting the country also coincided with the period of the survey.

As per the survey, the BCI at 131.2 for July was lower than its level of 142.8 in April. However, it was still higher than the BCI level attained in July and October 2003. "This is clearly an indication of the fact that though the business sentiment has been affected of late, the strength of the previous recovery is still providing enough strength to the overall business optimism," the NCAER said.

The survey has highlighted the fact that the decrease in BCI was quite broad based across sectors, region and different components. Overall economic conditions, investment climate, financial position of the firm, all got lower ratings in the July round. While the mood was pessimistic for the capital goods manufacturers in general, it was most pessimistic for firms belonging to the over Rs. 500-crore category. Similarly, across ownership pattern, the downswing in business sentiment was most pronounced for public limited companies.

It also came out that while firms were not expecting much change in their sales, production and exports, they were expecting material input costs to decline somewhat over the next six months. The labour market was expected to remain tight over the next six months and wages were expected to witness downward pressure for both skilled and unskilled workers.

While 40 per cent of the firms covered in the survey said power was the biggest bottleneck in efficiently pursuing business activity, 27 per cent felt it was road conditions which were the biggest hindrance. However, with the infrastructure sector, telecommunications stood out as the one sector which saw improvement in the last five years.

According to the NCAER, though the business confidence was down, the other economic indicators during the initial months of 2004-05 fiscal year had been largely positive.

There had been an improvement in offtake of non-food credit in the first quarter, growth of industrial output during April and May had been 7.5 per cent, exports and imports clocked 28 and 30.7 per cent growth during the first quarter and gross tax collections of the Central Government went up by 20 per cent during April and May 2004.