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Wednesday, Aug 07, 2002

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Business confidence `significantly' up

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THE business confidence index (BCI) being tracked by the National Council of Applied Economic Research (NCAER) has shown perceptible improvement by recording a gain of 8.7 points or 9.3 per cent over its level of 93.6 in the previous round.

In its latest survey, the council said the third successive increase in BCI in the current calendar year is "significant" in view of the uncertainty that the country faced in May and June as troops were amassed on both sides of the Indo-Pak border.

The gain in the BCI in the current round of Business Expectations Survey (BES) is not an "isolated" sign of revival of industrial activity. Currently, the percentage of respondents who felt that the investment climate has improved is 26.4 per cent compared with 25.9 per cent in April 2002, even while the positive responses to the improvement in the financial position of the firms rose to 47.3 per cent from 41.2 per cent in the previous round.

Though such signs remain mixed and clouded by the delay in the onset of the monsoon, the months of April and May saw improvements in industrial growth, non-food credit advances and capacity utilisation. An improvement in the monsoon later on would limit the adverse impact on the crop output to the kharif season. Export recovery could also offset to some extent the poor crop output growth. Lower interest rates could also improve conditions for new investments.

An offsetting influence, however, would be needed to maintain the recovery of industrial growth in the context of the weak monsoon. However, it raises no spectre of scarcity of food grain availability or access to foreign exchange this year, it said.

The distinct improvement in the BCI is broad-based in terms of different dimensions of business confidence captured by the index; there is an upturn in indicators pertaining to overall economic conditions, investment climate, financial position of firms and capacity utilisation. However, the upturn is not uniform across sectors, regions and size categories of firms, the council said, adding that the respondents in the consumer non-durables sector remain less optimistic now than in the last quarter.

The eastern region shows a decline in business confidence. Inventories have declined and so has the length of order books now, but the respondent firms expect sales, production and exports to pick up over the next six months.

Telecom and air transport are seen to be the most adequate across various types of infrastructure today. Power availability is the least adequate among the infrastructure services considered. The greatest proportion of respondents in the case of telecom and air transport also perceives an improvement over the last five years when economic reforms have brought in competition.

Government services are not perceived to be "adequate" by a majority of the respondents. Across the regions, firms in the northern and western regions are more commonly satisfied with "access" as well as "efficiency" of Government services than in the other two regions.

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