Contradictory signals on business confidence over the last one week, brought out by the National Council of Applied Economic Research (NCAER) and the Federation of Indian Chambers of Commerce and Industry (Ficci), are likely confuse Indian policymakers a bit. This is especially so given the current distractions of changing political equations at the Centre, made worse by the looming threat of a major US slowdown that could interrupt the global economic growth story. While the NCAER survey released last week had said that its business confidence index (BCI) was up by 5.8% after registering a fall in the previous two rounds, the Ficci survey released yesterday, in stark contrast, has reported its index dipping to its lowest level since the first quarter of 2003-04. Forecasts made by the Institute of Economic Growth (IEG), meanwhile, take a relatively neutral view. This report projects no immediate improvement in demand conditions in either domestic or external markets, and calls for a cut in interest rates, in sync with global trends, to arrest the continued insurge of capital flows and also shore up domestic demand.
So, what is one to make of these confusing portraits of business conditions in the Indian economy? The month long gap in the collection of data for the two surveys alone would not explain the contrast in portrayed scenarios. However, a close reading would turn one especially sceptical of the pessimistic picture presented by the Ficci survey. For instance, this survey?s current conditions index has registered a steady fall over the last five quarters?from around 74 in 2006-07?s second quarter survey to around 59 in the latest round. But despite this fall of around 15 points, India?s GDP growth has slipped only marginally, from 10.2% to 8.9%, during the period. This indicates that the survey?s findings, including its expectation trends, have not quite been in sync with ground realities of business conditions. Though manufacturing sector growth has indeed fallen steeply in recent times, this was on account of a sharp dip in the most recent quarter, and growth in this boom sector has otherwise been steady in the 12% range for most quarters over the past two years. In contrast, NCAER?s optimistic projections are more in line with figures thrown up by India?s other statistical agencies, and hence more realistic.
