Business optimism hits second-lowest point in 3 financial years: Survey

Business optimism in India has hit its second-lowest point in the past three financial years, suggests the quarterly survey of business expectations carried out by the National Council of Applied Economic Research (NCAER) and MasterCard.

In October 2012, the NCAER-MasterCard Business Confidence Index (BCI) fell to 125.4, a marginal dip from the index value of 126.6 in the July quarter. In July, BCI had experienced a drop in all its four major components. But, in October, there was a drop only in two of the four components. The business confidence index takes into account the present state of the economy and expectations for the future.

According to the survey, the fall in the GDP growth rate, the weak recovery of the advanced economies after the economic crisis, the high inflation rate and crude oil prices are the major factors which have adversely affected business confidence. The cost of labour, electricity and raw materials has gone up in the last quarter.

The Northern and Southern regions of India experienced a dip in the optimism levels, while the East and West experienced higher levels of optimism. The greatest drop in business sentiments was in the northern side (8.5 per cent). In the previous quarter, both East and West had experienced a drop in business confidence.

The survey suggests that the larger firms experienced a rise in BCI. The small and medium-size firms found their index value falling. The greatest decline in performance was found in the smallest firms. The public sector firms experienced modest growth, while the performance of private sector firms dropped in this quarter. The macro level indicators of the economy experienced a rise in BCI, while the micro level indicators fell. The major sectors of the economy which experienced a rise in optimism were the consumer durables sector and the intermediates sector. The consumer non-durables sector, capital goods sector and services sector experienced a fall in the index value.

Though the services sector experienced a drop, an overwhelming majority of the firms (87 per cent) are expecting improved sales in the future. Nearly 76 per cent of the firms expect an increase in production. In the firms which responded to the survey, there was a decline in the recruitment of all kinds of labour except casual or temporary labour.

In this quarter, there was a moderate improvement in the Political Confidence Index, the confidence of the industry in the political management of economic policies.