By Sravya Vemuri
A survey by National Council of Applied Economic Research (NCAER) stated that the Business Confidence Index rose 9.1 percent in the December quarter of 2017. The survey released on Monday showed the rise over previous three months, with the overall sentiment remaining bright.
Improved business sentiment
The survey said that the sentiment regarding production, domestic sales, exports, imports of raw materials and pre-tax profits reminded buoyant in October-December 2017, compared to the previous quarter. The Business Confidence Index for the second quarter (July-September) fell by 12.9 percent from the earlier quarter. The downturn was attributed to then ongoing GST transition. All sectors showed a declining trend in the last quarter. It was added that these imported sentiments were broad-based, with all sectors showing an increasing trend for all the components of the index.
Tracking since 1991
National Council of Applied Economic Research (NCAER) is one of India’s oldest economic think tanks, set up in 1956 at the behest of Prime Minister Jawaharlal Nehru, to inform policy choices for both public and private sectors.
The index is an important economic indicator, as it measures the amount of optimism or pessimism that business managers feel about the prospects of their companies or organisations. It also provides an overview of the state of the economy.
NCAER has been tracking the business confidence of Indian firms through a quarterly Business Expectations Survey since 1991. The survey provides an assessment of the present conditions for short-term prospects for India’s business environment based on responses from more than 500 companies in six metropolitan cities in India. The information with regards to firm characteristics, expectations of change in output and input costs, exports and imports, are all collated to form the final index, by using four parameters. They include overall economic conditions, investment climate, the financial position of the firm, and capacity utilisation.
Besides, there was also a considerable improvement in the situation pertaining labour employment and wages over the last three months and expectations about the labour employment and wages were optimistic. There was a pickup in the manufacturing sector and India’s industrial production also registered robust growth, augmenting the economic recovery of and importing economic sentiment.
Trigger for investments
The rise in the index is likely to drive investments in various sectors. In December 2017 quarter, fresh investments into India plunged to a 13 year low with the value of new projects declining to more than half of what they were a year ago. With the rise in the index, it is expected to attract more private investments across all sectors and also bolstering the already existing corporates. Currently, the investment rate is hovering around 27 percent of the GDP. The slowing investment rate is also a reading for the dip in the overall economic growth of the country. Therefore, it is essential that the investment growth is triggered by adopting appropriate policies. The index becomes important at a time when the Indian economy is trying to recover from the two simultaneous monetary tightening policies- transition to GST regime and demonetisation.
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