The Hindu Business Line : Business Confidence Index drops 11.6 pc

THE Business Confidence Index (BCI) being monitored and tracked by the National Council of Applied Economic Research (NCAER) to gauge corporate confidence factor, has dipped by 11.6 per centage points in the latest round over the previous round.

BCI, which had been consistently moving upward since April 2003 and had reached its pinnacle in April 2004, has finally tumbled in July, the latest survey period. At 131.2 in July 2004, it is lower than its level of 142.8 in April.

The Council contends that the downswing in BCI in the current round is clearly a result of the political developments and associated policy uncertainty prevailing in the country after the Parliamentary election with the decrease in business confidence index being broad-based across sectors, regions and among the different components that constitute BCI. Thus, overall, economic conditions, investment climate and financial position of the firms all have got lower ratings in this round.

While across the sectors, the mood is morose for the capital goods manufacturers, across the size class it is gloomiest for firms belonging to the category of over Rs 500 crore. Similarly, across the ownership pattern, the downswing in business sentiments is most pronounced for the public limited companies.

Regionwise, BCI for the companies located in the East, West and South has declined in this round compared to the previous round, while for those companies located in the North it has increased. Among the three regions reporting decline in BCI, the decline is sharpest in the West followed by the South.

Again, as firms are not expecting much change in their sales, production and exports, they are still expecting material input cost to somewhat plummet during the next six months, the Council survey noted.

The labour market is likely to remain tight over the next six months and wages would witness downward pressure for both skilled and unskilled workers. The cost of borrowing for larger firms continues to be lower compared to the smaller firms.

Expenditure on information technology, though tangible across all the sectors, is more pronounced in the case of firms belonging to consumer non-durable sector followed by services and capital goods sector.