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Coming back from the negative zone, the political confidence index has shot up like a bullet, thanks to the comeback of Congress-led UPA government
The latest round of business confidence survey conducted in July 2009 witnessed a whopping 98% jump in the political confidence index (PCI) over its level in April 2009. The UPA government coming back to power at the centre with a clear mandate has led to this sharp surge in the index, after witnessing two consecutive declines earlier. It fell by 12% in the last round of survey. With congress-led UPA government having sworn in for a second consecutive term, the industry has breathed a sigh of relief. In the April round, the drop in PCI was a percent higher than the decline of 11% witnessed in the business confidence index (BCI). However, this time the jump in PCI has been more than double than the 45% rise in BCI in the latest round.
The PCI measures respondent companies'' confidence in the government across eight parameters ? managing overall economic growth, government finance, inflation, unemployment, exchange rate, conducive political climate, external trade negotiations (both bilateral and multilateral) and pushing forward economic reforms. All the eight components have contributed to the jump in PCI in the latest round. However, respondents are more bullish on government''s ability to manage a conducive political climate in the country and push the economic reforms forward. Rupee appreciation of 5-6% during the quarter of April to June 2009 has not particularly gone down well with the industry as the factor of managing exchange rate witnessed the least amount of increase.
Sectoral Performance
All the sectors unanimously witnessed a smart jump in PCI ratings with the intermediates sector registering the highest increase of 127% over the previous round. In contrast, the consumer durables sector was a laggard and witnessed a jump of just 52%. The companies in the sector viewed the government to be inadequate in assuaging their problems. A comparison has shown that the consumer durables sector hammered by the economic vagaries posted the maximum drop of 4% in ratings on the factor of managing unemployment. The intermediates sector witnessed almost quadrupling of its rating on the factor of conducive political climate.
Confidence By Region
The end of the civil war between the Sri Lankan government and the LTTE with Prabhakaran''s death has resulted in the sharp jump of more than five times in PCI ratings in the southern region of the country?the highest among all four sectors. Against this, the northern region witnessed a marginal rise of 20% and the other two regions?East and West, witnessed a rise of 73% and 98%, respectively. Again the factor of managing conducive political climate in case of the southern region set the ratings soaring by ten times, the steepest increase among all regions. In contrast, the northern region saw the maximum drop of 13.5% in its ratings on the parameter of managing exchange rate.
Confidence By Type Of Companies
While companies of all types witnessed a surge in confidence, the public sector players seem to be the most rejoiced over the clear political mandate won by the government at the centre. This is reflected by the highest rise of 162% in their ratings. The public limited companies in the private sector, though least affected by the changed political scenario, registered an increase of 63% in their ratings. Again the parameter of managing conducive political climate witnessed the highest jump of more than six times in case of public sector companies. The least improvement of 10% was witnessed in case of public limited companies in private sector companies on the parameter of managing inflation.
Confidence By Size Of Companies
It was a unanimous increase in PCI ratings across all companies, irrespective of sizes. However, the very small companies with a turnover of less than Rs 1 crore have registered the highest jump of 373% in their ratings over the previous round. These small players seem to be happy with the prospect of stability with the government. The lowest increase of 54% in ratings has been seen in case of the large companies (with turnover above Rs 500 crore). Yet again, it was the parameter of managing conducive political climate, which witnessed the maximum jump of more than 10 times in case of very small companies (with a turnover less than Rs one crore). The companies with turnover between Rs 100 and Rs 500 crore witnessed the least rise of mere 7% in case of the parameter on managing exchange rate.
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