The survey exhibits a decline of more than 4 percentage points over the previous quarter. It registered the third consecutive decline in current financial year after April 2012 and the biggest fall in last three financial years.
Shashanka Bhide, Senior Research Counselor at NCAER says, “the findings capture the sluggish pace of industrial output in the quarter ending December2012. However, the resistance of firm level indicators of capacity utlisation and financial position are important positive signs. Policy support to strengthen these firm level efforts will hasten industrial growth recovery.”
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But there are some mixed signals as well. While the perceptions on overall economic growth and investment climate are on the decline, the financial position of firms and capacity utilisation are at the same level as in the previous quarter.
Both public sector and private sector firms have registered lower business optimism in January 2013. The rate of decline is the highest in partnership/individual owned firms. The firm-level indicators reveal lower expectations for improvement in domestic sales, production and profitability conditions of the firms in the next six months.
Exports and imports, on the other hand, reflect improved expectations in the short run. A larger proportion of firms are expecting an increase in the input cost and ex-factory prices in the next six months. Under the category of input costs, the raw material cost and labour cost per unit of output are likely to increase while electricity cost is likely to remain unchanged.
There is a decline in business optimism in four out of five major sectors over the last quarter. The capital goods sector is the only one which has registered improved optimism while all the others show a drop over October 2012.
The January 2013 BCI is the highest in services sector at (126.8), followed by the capital goods sector (123.9), consumer non-durables (121.2), consumer durables sectors (120.4) and Intermediates sector (111.2). The survey shows huge concerns for the consumer durables sector which reveal a significant drop in the business sentiments, while reflecting continued lower business sentiments in consumer non-durables and services sectors.
Disaggregation of responses by regions indicates a turnaround in the pattern of changes in three of the four regions. North is the only region that has shown improvement in January 2013 BCI as against the previous quarter.
The regions of West, East and South have all shown a decline in business confidence. Overall, BCI is the highest in North (142.5) followed by South (124.5) and East (124.2). The West has again registered the lowest BCI of all at 82.1 in January 2013 over 93.9 recorded in the previous quarter.
The present survey reflects lower level of optimism across firms of all sizes. While the smaller and larger categories of firm size shows a decline in business confidence, the medium sized firms show marginal improvement in January 2013 BSI over the last quarter.
Finally, contrary to the broad trend in the BCI, the Political Confidence Index (PCI) shows an improvement of 7.7 percentage points in January 2013 over the last quarter. The PCI provides the measure of confidence of the business sector in the political management of economic policies.
Six out of eight indicators of PCI reveal higher levels of optimism in the present survey. There is uniformity in the perceptions of political confidence across sectors, regions, firm size categories and ownership types.
A disappointing aspect of the current economic situation is the combination of high fiscal deficit and a decelerating economic growth. This is mainly on account of decline registered in the agricultural sector and a weakened growth in the industrial sector.
The silver lining however seems to be lower inflationary pressures during the survey period; however, there is still a worry that this is not broad-based enough.
This phase is therefore quite crucial for both the government and industrial sector in reviving the positive climate for economic activity. The success in raising disinvestment revenue is likely to be a significant factor influencing the investment climate.