Business confidence at 10-yr high: NCAER

Political confidence Index dips over doubts on reform thrust.

Business confidence in the economy has soared to a 10-year-high. However, the pulls and pressures of coalition politics has resulted in political confidence "" a measure of the perceptions about the government's commitment to reforms "" plummeting 13 per cent to 104 in July 2005, according to the National Council for Applied Economic Research (NCAER).

The political confidence index (PCI), fell from 119.5 in April 2005 to 104 in July 2005, a dip of 13 per cent. In contrast, the Business Confidence Index (BCI) rose almost 1 per cent from 143.1 to 144.1

In the PCI, the government's performance worsened in seven of eight parameters covered. The sharpest dip of 23 per cent, from 59 in April 2005 to 45 in July 2005, was in the perception about the government's ability to push forward economic reforms.

The increasing tension with the Left parties over disinvestment was the major factor. This was followed by a 19 per cent dip, from 37 to 30, in the exchange rate management ability perception.

The rising rupee and the impact on Indian exports, especially in the IT segment, has been responsible. In managing overall economic growth, the index dipped 18.5 per cent to 44 from 54 in the previous round. Political instability in Bihar led to steep dips in the PCI in the East and North.

The dip in the index in these regions was a steep 22.5 per cent. In the West, the dip, from 116.4 in April to 108 in July, was in the range of 7 per cent, while in the South, the index fell only marginally from 104.2 to 104.1. By sector, the steepest fall in political confidence was in consumer durables sector (29 per cent), followed by services (13 %). Capital goods sector reported a 11 per cent dip in confidence and intermediate goods fell by11.5% .

Consumer non-durables, however, reported a 3.7 per cent rise in confidence from 111.3 to 115.4 in July 2005.