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Business confidence high in India, reveals study

A bullish share market and stable political conditions saw the business confidence soaring in the October-December 1999 quarter, reports the National Council of Applied Economic Research.

An NCAER survey pointed out that the Business Confidence Index rose significantly to 107.3 during the quarter. The survey suggested improvement in the perception of respondents on all counts -- overall economic situation, financial position, capacity utilisation and investment climate.

It said the sentiment appears to be a result of the stability in political conditions, the bullishness of the stock market, low inflation, growth in exports, rise in foreign exchange reserves and pro-business legislations like the insurance bill and the Foreign Exchange Management Act.

On the upside, confidence level improved sharply in consumer durables and services. Businesses expect acceleration in sales, production and exports and imports of finished products.

Despite the sharp improvement in business sentiment, the survey indicates that inflation is expected to rise, hiring of unskilled workers is expected to decline in the next three months, respondents expect excise, customs and income taxes to rise in the coming budget, and exports of services is not expected to be buoyant.

Besides, firms in the capital goods and consumer non-durables sectors are less euphoric, and large firms (turnover over Rs 1 billion) are less optimistic about improvement in financial position.

This is consistent with the fall in pre-tax profit of top 175 companies observed last year. Smaller firms (turnover between Rs 100 million and Rs 1 billion) are less optimistic about improvement in capacity utilisation.

Transplanting greater optimism into accelerated investment activity may yet be linked to improvements in fiscal performance and lower interest rates.

Forecast upped: 6.5% industry growth rate, 6% GDP growth

Buoyed by an increase in private investment and exports, the NCAER has now projected that the GDP would grow at six per cent in 1999-2000, up from its October 1999 forecast of 5.8 per cent.

It further projected a 6.5 per cent growth rate for industry in 1999-2000, while exports are estimated to grow at 15 per cent in rupee terms and 9.4 per cent in dollar terms.

The NCAER, in its latest quarterly update, pointed out that imports would grow at a higher rate of 17 per cent in rupee terms and 11.5 per cent in dollar terms. Trade deficit was forecast to be in the range of 2.4 per cent of GDP and the current account deficit was projected at 1.9 per cent of GDP.

Having posted a smart recovery in 1998-99 over negative growth during 1997-98, growth prospects for the agricultural output during 1999-2000 are not very encouraging.

Estimates for the current agricultural year by the ministry of agriculture suggest that kharif foodgrain production is likely to remain below last year's output level of 102.7 million tonnes. Although the output of rice and pulses is expected to show a positive growth of 2.6 per cent and 7.9 per cent, the production of coarse cereals, however, is down by 11.7 per cent over last year's output.

Nevertheless, indications for the rabi output are slightly better and it is expected that the improved performance of rabi output will compensate for some of the loss in output of foodgrains suffered during the kharif season.

The growth prospects for oilseeds, cotton and sugarcane remain mixed. While the production of oilseeds during the kharif season is likely to witness a drop of about 25.8 per cent over last year, the output of cotton and sugarcane is expected to be much better as compared to their previous year's output levels.

Although the overall monsoon rainfall turned out to be normal for the twelfth year in succession, significant variations across regions affected the agricultural output. In the southern region, Madhya Pradesh, Maharashtra, coastal Andhra Pradesh, Rayalaseema, Tamil Nadu and Kerala experienced below normal rainfall.

As a result, floods damaged the standing crops in states such as Bihar. On top of this, one of the worst cyclones of this century in Orissa during the month of October affected paddy output severely, the NCAER report said.

UNI

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