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India Inc optimistic of investments
By agencies
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Monday, 08 August 2005, 19:30 IST
NEW DELHI: The momentum gained from an 8.2 percent growth in industrial output in 2004-05 has pushed the optimism of the business sector thereby reflecting a favorable climate for new investments but entrepreneurs at large are not pinning great hopes on the government, a leading economic think-tank said based on a nation-wide study.
The business confidence index (BCI) reached an impressive level of 144.1 in July this year, up one percentage point over the previous quarter, despite volatility in international oil prices and growing global geo-political uncertainties. All the same, the political confidence index (PCI) plummeted in the present round by 15.5 percentage points, the National Council of Applied Economic Research (NCAER) pointed out in its latest Business Economic Survey (BES).
Thus, even as the BCI (based on overall economic conditions, financial position of the firms, capacity utilization and investment climate) has gained further ground by steadily going ahead with an upswing barring a few aberrations since October 2001, the PCI currently stood at 104, thus showing the business community's lack of optimism about the overall performance of the government.
As compared to the previous round, the performance of the political leadership has improved only with regard to ''managing a conducive political climate'' but declined drastically for ''pushing economic reforms further,'' said the study based on responses from 571 firms spread across all the regions, sectors and size-class of the country.
The current political leadership continued to receive the lowest rating (among all parameters) on the management of unemployment, followed by the management of political climate. Only about 14 percent of the surveyed firms felt that the current political leadership would manage unemployment better in the coming six months, while 21 percent felt that the leadership would manage a conducive political climate, said the study by the 1956-registered society, which functions to assist the government, civil society and private sector to make informed policy choices.
Of the three sectors, the manufacturing sector continued its excellent run by posting a double-digit growth of 10.5 during April-May 2005, while the corporate sector displayed a ''robust'' overall growth in 2004-05 with net profit increasing to 37.2 percent from 35.6 the previous fiscal and net sales ticking a 12.8 percent rise.
Despite expectations of better financial performance and improvement in capacity utilization as compared to April 2005, overall economic conditions and investment climate registered a lower rating in the present round. However, PSUs, after turning pessimistic in the previous round, have become fairly optimistic, albeit NCAER noted this as ''perhaps a reflection of their perception of the short-term future.''
Nearly 90 percent firms reported that their existing capacity utilization stood at more than 50 percent. Of these, 49 percent reported three-fourth capacity utilization or more.
A little over one-third of the new investment in the current fiscal is on quality/efficiency improvement as firms in this round expected both production and exports to go up in the next six months.
Although expectations about various components of input cost during the next six months are not uniform, a larger proportion of firms in this round expected output prices to rise in the next six months.
Also, a higher proportion of firms in this round expected to hire both managerial and permanent work force but the situation remained reversed with regard to unskilled and casual work force.
A sector-wise break-up showed the BCI on the rise across the board even as its pertinent PCI also rose from 111.3 to 115.4 in this round largely owing to a bullish run of consumer non-durables in both cases. As for BCI, the lowest upsurge was recorded by the capital goods sector following fall in ratings for three dimensions - financial position of the firm, investments climate and capacity utilization.
At the regional level, barring the east, the three other regions reported a downswing in business confidence with the south recording the maximum loss of 4.8 per percentage points in the BCI. The PCI in this case showed the north displaying relatively higher confidence in the current leadership despite the index showing an overall decline from 140.9 to what were 109.3 in the previous round.
The PCI for the south remained nearly the same at 104.1 in this round compared to 104.2 last time.