As India unlocks, business sentiment and political confidence improve

New Delhi, Nov 3 (UNI) As India unlocks and fights back COVID-19, business sentiment across the country has improved from its lowest ever level in Q1 (2020-21) while political confidence has increased, according to the National Council of Applied Economic Research (NCAER).

The NCAER, India’s oldest and the largest independent economic think tank, says in its Business Expectations Survey (BES) that Business Confidence Index (BCI) rose by 41 percent between Q1 and Q2 (2020-21) after declining for two consecutive quarters (Q4 :2019-20 and Q1:2020-21) and falling to its lowest ever of 46.4 in Q1:2020-21.

BCI increased to 65.5 in Q2:2020-21. It was lower by 36.5 percent compared to Q2:2019-20 and remained lower than the BCI in Q4:2019-20.

According to the NCAER, Political Confidence Index (PCI), after falling for two consecutive quarters, increased by 16.8 percent from 63.1 in Q1(2020-21) to 73.7 in Q2(2020-21) (back to the level in Q4:2019-20), but showed an overall fall of 9.6 percent.

The upturn in the PCI was driven by an improvement in sentiment for three of the eight components that drive the PCI, namely, ‘managing a conducive political climate’, ‘external trade negotiations (both bilateral/multilateral)’, and ‘pushing economic reforms forward’.

Sentiments remained unchanged for the component, ‘managing government finances’.
The share of positive responses worsened for the remaining four components, namely, ‘managing overall economic growth’, ‘managing inflation’, ‘managing unemployment’ and ‘managing exchange rate’.

The BES, therefore, suggests that although business sentiment is recovering from its lowest ever level in Q1:2020-21, it continues to remain subdued.
BCI for the West (Mumbai and Pune) increased by 135.5 percent for the South (Bengaluru and Chennai) by 79.6 percent, for the North (Delhi NCR) remained virtually unchanged between Q1:2020-21 and Q2:2020-21. However, the BCI for the East (Kolkata) contracted further by 6.1 percent.
Business sentiment in the East continues to be persistently weak, unlike the other regions.
‘’Overall, business sentiment was more optimistic in the North and South compared to the East and West,’’ the NCAER says.
There was an across-the-board improvement in business sentiment for all five firm size groups. The BCI increased by 195.3 percent for the public sector, by 12.7 percent for private limited firms, by 54.1 percent for public limited firms, and by 53.7 percent for partnerships/individually owned firms.
Sentiment in public sector companies (115.1) and public limited companies (73.6) seems to be more optimistic than in the private limited companies (56.4), and in partnerships/individually owned firms (54.7).
While the scale of hiring has improved after the phased lifting of the lockdowns, firms have continued to cut salaries of their employees. Thus, it is not surprising that the labour costs per unit of output incurred by the firms have come down, the NCAER says.


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