Political confidence index drops 16.5%

Corporate India’s confidence in the management of economic policies by the Centre has taken a severe beating, despite several indicators that point to a turnaround in the economy, according to a survey. The survey by economic think tank National Council for Applied Economic Research (NCAER) and the research arm of payment solution firm MasterCard has cast doubts on the government’s ability to manage its finances, inflation in the country, unemployment, as well as a favourable political environment.

“The Political Confidence Index (PCI) in the current round witnessed a 16.5 per cent decline compared to a 4 per cent decline in October 2009,” said the survey.

PCI, which measures the confidence of the business sector in the political management of economic policies, fell to 120.6 points in December from 144.4 points in October 2009.
 

DISSATISFACTION REPORT CARD

* Ratings of all the eight components of PCI have shown a decline

* Indicators that fell steeply are managing of government finance, managing of inflation, managing of unemployment and managing a conducive political climate

* Of late, relentless rise in food prices has aggravated overall inflation to 7.31 per cent for December

* The decline in the rating for management of conducive political climate has perhaps been aggravated by factors like disruptions in civil life over demands for new states

* The remaining four components whose ratings continue to decrease are trade negotiations, pushing the economic reforms forward, managing overall economic growth and managing exchange rate

* This is despite the fact that Business Confidence Index ratings continue to gain momentum

“In fact, across all parameters of the PCI, the current round points to greater dissatisfaction with policies while the improvement in economic conditions is perhaps attributed to other factors,” the survey said. Ratings of all the eight components of the PCI have shown a decline. Of them, indicators that fell steeply are managing of government finance, managing of inflation, managing of unemployment and managing a conducive political climate.

“One source of dissatisfaction may lie in the high price rise of food items which has been seen over the past few months leading to a lower demand and higher wages, and perhaps the fear that a monetary tightening might follow,” the survey said.

Though some of the changes may be attributed to a general perception of concerns on inflation, there may also be some specific concerns, the NCAER-MasterCard survey said.

Of late, relentless rise in food prices has aggravated overall inflation to 7.31 per cent for December. The central bank expects inflation to touch 8.50 per cent by March-end.

“The low ratings on management of government finances could be attributed to the high deficit level,” it said.

Fiscal deficit, which is estimated to touch 6.8 per cent this financial year, widened because of tax and duty cuts announced by the government as part of measures to support recovery in the economy in the aftermath of 2008’s global financial meltdown.

“The decline in the rating for management of conducive political climate has perhaps been aggravated by factors like disruptions in civil life over demands for new states,” it said.

The remaining four components whose ratings continue to decrease are trade negotiations, pushing the economic reforms forward, managing overall economic growth and managing exchange rate, the survey said.

“This is despite the fact that Business Confidence Index (BCI) ratings continue to gain momentum. This could indicate a weak correlation between the BCI and the PCI,” it said.

BCI, which measures industry’s optimism on economic conditions, rose in December by 7.03 per cent over October.

Indian economy is witnessing a turnaround as it clocked a GDP growth of 7.9 per cent in the second quarter of the current financial year and as industrial output surged by 16-year high of 16.8 per cent in December 2009.