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Business confidence across the country is positive for the first time since December 1995, according to the May-June 1997 survey by National Council of Applied Economic Research (NCAER) of 526 units based on investment climate, financial position, capacity utilisation and overall economic conditions.

The study was specially undertaken for BusinessWorld, the fortnightly business magazine, which will publish the findings in its forthcoming issue.

The improvement is seen across sectors, regions, scale of firms and type of ownership. However, there are variations in the degree of improvement, suggesting that the perceived improvement would need to be sustained to be translated into actual improvement in business decisions. Capacity utilisation does not show substantial improvement over the previous round (conducted in January-February 1997) and inventory levels are still substantial. Therefore, the survey concludes that the improvement in the subjective criteria such as investment climate is yet to be reflected in the objective criteria such as capacity utilisation and inventory holding.

 

Smaller firms have been more cautious in assessing improvement in business conditions relative to the larger firms.

The high interest cost in 1996-97 may have affected smaller firms more than the larger firms and the lower interest rates have not affected the smaller firms sufficiently, the survey argues.

The survey indicates that slack demand conditions in the domestic market may induce firms to seek export markets more aggressively. Generally, exports in 1997-98 are expected to perform better than in the previous year. Political uncertainty prevailing in the country has adversely affected business, according to the survey.

The NCAER-constructed over all business confidence index, which had been declining since December 1995, has shown a rise for the first time of about 14.4 per cent.

The main indicator that has contributed to the rise in the index is the rating of investment climate, which has shown positive responses from 37 per cent of the respondents over the previous index.

The second important factor has been the number of respondents who see the overall economic conditions as improving. The capacity utilisation indicator has only shown a marginal rise of less than 1 per cent.

At the regional level, the major increase in the index has been in the eastern region. Public sector respondents revealed greater optimism than private sector respondents.

Within the private sector, public limited companies have revised their assessment of the economy upwards to a greater extent than other forms of ownership.

The improvement in the overall index is led by consumer non-durables and services sectors. The improvement in the index is more prominent for the larger firms than smaller firms.

The rise in the index also suggests that firms are expecting better performance in terms of sales, production and capacity utilisation.

The average rates of increase expected for 1997-98 for sales, production and capacity utilisation exceed those of the previous year.