Biz confidence hit by anti-inflation steps

High level of inflation and stringent monetary measures by the Reserve Bank of India has damaged the confidence of corporate India.

A quarterly survey by economic think tank National Council of Applied Economic Research (NCAER) saw the Business Confidence Index (BCI) falling across sectors by 6 points (3.8 per cent) over the previous quarter.

The fall in BCI is across all four main components and across all sectors. The NCAER has takes into account four components to calculate BCI, namely, overall economic conditions, investment climate, financial position of the firms and capacity utilisation.

The think tank said as gross domestic product grew by 9 per cent during 2006-07 and manufacturing sector registered a double-digit growth, "the drop in BCI in the current round could only be related to the impact of the current phase of monetary tightening".

"The only explanation that could be offered for the drop in the BCI could be high inflation followed by the consequent monetary policy efforts to contain it. If the measures succeed, then business sentiments might recover. However, for the present, the confidence has been dented," NCAER observed.

The drop in the BCI is also uniform across the main sectors of the industry. Calling it a rare trend, the NCAER said previous rounds of the survey generally reflected heterogeneity in expectations, especially when the overall BCI declined.