The business climate seems to have got a bit darker.
The latest business confidence index collated by the National Council for Applied Economic Research (NCAER) shows that sentiment has dipped 3.4% in the first quarter of calendar 2008 compared with the last quarter of 2007. Not surprising. These were months of rising inflation, higher interest rates, slower growth and volatility in the financial markets. This is the fifth consecutive time when business confidence in a particular quarter was lower than what it was a year ago. Most sectors and regions have been affected. It’s a harbinger of the future.
One of the most worrisome components in this decline is the deterioration in the investment climate. However, there are very few signs of flagging investment spending as yet. The order books of capital goods manufacturers are still expanding and imports of equipment, too, show few signs of slowing down.
But this is historical data. The expectations survey, however, is forward-looking and suggests that companies may be less eager to invest in the months ahead. That would be unfortunate since the sharp rise in the investment rate since 2004 has been one of the highlights of the current economic boom.
As of now, the NCAER survey shows that the sharpest declines in confidence are in consumer goods companies rather than in capital goods companies (which have actually bucked the trend). So, it’s too early to jump to any conclusions.
Of course, the NCAER survey is just one of the various measures of business expectations. The Reserve Bank of India released its Industrial Outlook Survey last week, to coincide with its annual monetary policy statement. This survey transmits mixed signals. But the main message is that business people expect the second quarter of 2008 to be better than the first quarter. Now that’s heartening—and surprising.
The slowdown in the US, higher global inflation, India’s growing unfunded subsidy bill and slower growth in corporate profits are just some of the worries that are likely to occupy CEOs in the months ahead. The mood is likely to be circumspect rather than euphoric.
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