Business Confidence Survey - Oct 08

Winning The Trust Vote

Contrary to the movement in BCI, the Political Confidence Index has surged 25%. This may be due to the end of uncertainty surrounding the Congress-led UPA govt and formal approval of the Indo-US nuclear treaty

THE latest round of the ET-NCAER Business Expectations Survey conducted in October '08 has witnessed a remarkable 25% surge in the Political Confidence Index (PCI), which was not seen in at least past 15 rounds of the survey. This surge can probably be attributed to the end of uncertainty surrounding the Congress-led UPA government at the Centre and formal approval of the Indo-US nuclear treaty.

In the previous round of the survey, PCI had witnessed a 32.5% drop - which was steeper than the 17% fall witnessed in the round prior to that. The surge in PCI in the current round is in contrast to the movement in business confidence index (BCI), which has continued to decline for the third consecutive quarter.

The PCI measures respondent companies' confidence in the government across eight parameters - managing overall economic growth, government finance, inflation, unemployment, exchange rate, political climate, external trade negotiations (both bilateral and multilateral) and pushing economic reforms forward. Seven of these eight components have contributed to the gain in PCI in the current round. However, the factor that seems to have pulled down the PCI is management of political climate. The political ire faced by Tata Motors in Singur may have influenced the adverse opinion on this parameter.

Sectoral Performance: While the PCI has witnessed growth across all sectors, the intermediates sector, followed by the capital goods sector, have shown the maximum surge of 40% and 24%, respectively, compared to the previous round. Against this, the consumer non-durables sector has seen the least rise of only 5%. The consumer non-durables sector has posted the maximum fall of 52% on the parameter of managing inflation. On the other hand, the intermediates sector has witnessed the highest increase of 90% on the parameter of managing unemployment.

Confidence By Region: Among the four surveyed regions, viz east, west, north and south, only the northern region has witnessed a fall in PCI, while the southern region has witnessed the highest rise. The government's ability to maintain a conducive political climate has witnessed an extreme of sorts. In the wake of the Singur controversy, the eastern region witnessed the maximum drop of 58% in confidence on this parameter compared to the previous round of the survey. On the other hand, the southern region recorded the maximum increase in confidence on this parameter.

Confidence By Type Of Companies: When PCI was on a decline, public sector companies were most confident of the political environment in the country. Now, with the surge in PCI, PSU companies have shown a 6% drop in confidence. All other types of companies in the private sector, viz private limited, public limited and partnership/individually owned, have witnessed a growth of more than 23% in confidence. Public limited companies have registered the biggest drop of 30% with regard to maintaining a conducive political environment.

Confidence By Size Of Companies: Companies of all sizes have witnessed an increase in PCI. Interestingly, very small companies (with turnover of less than Rs 1 crore) have recorded the highest increase in PCI. This is because, with any change in the political landscape in a region, the small players are affected the most. Conversely, very large companies (with turnover of more than Rs 500 crore) have witnessed the lowest rise of 13% compared to the previous round of the survey.

Kiran Kabtta Somvanshi/ETIG
kiran.somvanshi@timesgroup.com