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India Inc’s confidence of the Narendra Modi government might be waning, according to a survey by the National Council of Applied Economic Research (NCAER). The 93rd round of the survey, conducted in June 2015, also showed companies as being less optimistic about their business.
The Political Confidence Index (PCI), which tracks how companies view the governance pattern of the current ruling establishment, slid 17.7 per cent in the first quarter of FY16, compared to the previous quarter. Companies’ confidence in the government fell 16.2 per cent on a year-on-year basis, the survey revealed.
Less than 40 per cent of the respondents provided positive responses to questions on ‘managing inflation’, ‘managing unemployment’, ‘exchange rate’ and ‘conducive political climate’. The index fell by double digits across industries, for firms of all sizes. The southern region showed the largest decline in confidence.
Business confidence came down at an ever faster pace in the first quarter of FY16. While the confidence index fell 11.9 per cent in April-June 2015 on a sequential basis, the same was down 15.1 per cent year-on-year.
The survey, which tracks 500 random firms from all industry segments in six major cities, showed all components of Business Confidence Index (BCI) register negative change between April and July 2015.
The ‘present investment climate is positive’ component crashed drastically with only 38 per cent respondents agreeing, down from 49.5 per cent.
Confidence among the manufacturers showed double-digit decline in all four sectors – consumer durables, non-durables, intermediate and capital goods - with consumer durables falling the most. The services sector showed a marginal improvement of 2.6 percentage points. Regional distribution of responses reflected mixed perceptions with all regions other than Western showing a decline in business confidence. While the confidence of businesses in the Western region rose 6.3 percentage points, those in the Southern region fell 24.5 percentage points. The decline in the Northern and Eastern regions were by 9.6 and 7.2 percentage points, respectively, with sentiments particularly low in the East.
The divergence in business sentiments across firm sizes increased significantly. Companies of all sizes experienced lowered confidence barring firms with annual turnover greater than Rs 500 crore, which witnessed a surge in confidence by 2.3 per cent on a quarter-on-quarter basis.
Companies with annual turnover between Rs 10 crore and Rs 100 crore showed the sharpest fall in confidence by 16.4 percentage points. Interestingly, public limited companies gained confidence by four per cent, while individual/partnership owned firms lost confidence by 18.6 percentage points. All firms have muted outlook on production, domestic sales, exports, imports of raw materials, and pre-tax profits. Most of them expect a rise in labour and electricity costs.
