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After the dismal gross domestic product (GDP) numbers released last week and the fall in the Purchasing Mangers' Index for manufacturing announced by HSBC yesterday, the economy has received another setback.
In the quarter ended March, the Business Confidence Index dropped 4.5 per cent compared to the previous quarter, according to a National Council of Applied Economic Research (NCAER)-MasterCard survey.
According to the 84th quarterly survey, conducted in March, the index stood at 114.1 points, against 119.7 points in the previous quarter.
During the same period, the political confidence index registered a slight improvement.
"The firm level indicators reveal lower expectations of improvement in domestic sales, production, imports, exports and pre-tax profits in the next six months, contributing to lower business confidence among industrial units," the survey said.
Shashanka Bhide, senior research counsellor, NCAER, said the survey showed the sluggish pace of industrial and services output during the quarter.
He, however, added, "The resistance of the firm level indicator of capacity utilisation and the overall sentiment on growth in the short term are important positive signs.
Policy support to strengthen these positive aspects of business confidence would hasten industrial growth recovery."
The index of business confidence measures business confidence for four equal indicators—overall economic conditions six months ahead, financial position of firms six months ahead, the investment climate and the level of current capacity utilisation.
Of the four, the ratings on investment climate and financial position show a decline, while those on capacity utilisation and expectations on economic conditions show improvement in the short term.
The survey added input costs, including those on raw material, labour, electricity and ex-factory prices per unit of output, are expected to increase in the next six months.
However, the survey said the current scenario (after the survey was completed) had changed and the overall business sentiment had improved.
"One key reason could be the significant fall in headline inflation in April to 4.89 per cent - the lowest in the last three years.
Hopes of an interest rate cut and lower inflation have also brought back some of the sheen to the stock market, though this has been tempered by rising gold imports, which have widened trade and current account deficits," the survey said.
The political confidence index, which provides a measure of the business sector's confidence in the management of economic policies, has improved consistently since October 2012.
In the quarter ended March, it rose 15.5 points to 94.3 points, against 78.8 in the previous quarter. "Six of the eight indicators show improvement in the current round.
The uptick suggests some improvement in the perceptions of the capability of the government to manage various economic policies," the survey said.According to data released last week, GDP growth in 2012-13 stood at a decade-low of five per cent. The HSBC Purchasing Managers' Index for May showed manufacturing output fell to 50.1 points.
