India Inc bullish: NCAER

'Inflation fears dampen rising business confidence'

Despite an optimistic business outlook for the next six months, India Inc is still apprehensive about the United Progressive Alliance (UPA) government's ability to adequately address the issues of inflation and unemployment.

The National Council for Applied Economic Research ( NCAER), in its Business Confidence Survey, said the present government's focus on improving the functioning of public sector undertakings (PSUs) had resulted in a better index of business confidence in this round.

"Renewed emphasis of the present Union government on restructuring some of the ailing PSUs and providing greater autonomy to PSUs performing well, perhaps, is the reason for their higher business confidence in the present round," the survey said.

The business confidence index, which captures the overall economic condition, financial position of firms, investment climate and capacity utilisation based on a survey of 610 selected respondents, improved its January performance to attain 136 points.

Rising inflation and unemployment are the sore points in an otherwise healthy economic picture, according to the surveyed firms. While just about 21 per cent of the respondents felt the present dispensation would perform "better" in managing inflation, only 13 per cent were confident of the government being able to handle the unemployment problem.

The higher business confidence, however, may not translate into greater wages for the workers. Though there was a rise in the proportion of firms expecting profits to grow by 10 per cent, only a small section of them expected wages to go up.

Consequently, despite higher inflation eating into their incomes, "managerial/skilled/unskilled workers will have to remain satisfied with tight pay packets," the survey said.

The survey also pointed out that the new government was gradually moving towards addressing issues of business and governance. India Inc is optimistic about profits, sales, production and exports in the next six months, but not very hopeful about profit margins. Firms expected interest rates to fall for short-term borrowings, but not for medium-term credit.

A region-wise analysis revealed that the northern region was the most satisfied with the political leadership on the listed economic parameters, but discontentment was highest in the South. While 37 per cent of the firms from the northern, eastern and western regions felt that the present political leadership will perform "better" over the next six months, on 21 per cent in the South thought so.

Overall, the survey said about 48 per cent of the firms surveyed reported that the government's performance on various economic parameters would be the "same" and about 21 per cent of the firms foresaw a worse scenario.

The survey also showed that production costs were expected to increase moderately. Projecting a decline in the business confidence of partnership/individually-owned companies, the NCAER said it appeared to be in conformity with the dip in business confidence of smaller firms, most of which are partnerships/individual-owned entities.

Survey in figures

• Business confidence index attains 136 points
• About 21% of the respondents feel the UPA govt will handle inflation "better"
• Only 13% confident of UPA being able to handle the unemployment problem