Post on 08-Sep-2020
• Business Confidence Index gains by 2.5 points
• Services sector has registered higher increase in BCI than the manufacturing sector.
• GDP growth rate in 2006-07 expected to be in the range of 8.5%-9%.
• 85% respondents expect to undertake Capital Investment in 2006-07
• 80% respondents expect increase in new orders
• 56% respondents expect employment to increase in the second half of 2006-07
• 73% exporter respondents expect exports to increase in the second half of 2006-07
• 68% foresee increase in imported raw materials prices
Highlights
I. CII BUSINESS CONFIDENCE INDEX
CII Business Confidence IndexThe CII Business Confidence Index (CII-BCI) for
October-March 2006-07 increased by 2.5 points thus
reflecting an increase in business confidence compared to
the past 6 months. The CII-BCI is constructed as a
weighted average of the Current Situation Index (CSI) and
the Expectations Index (EI). With the value of the index
lying above 70 points, it can be said to reflect a moderately
positive confidence. The CII-BCI for non-manufacturing
firms was moderately higher (73.5) than that for
manufacturing firms (71.5).
Business Confidence Index
The Current Situation IndexThe Current Situation Index (CSI) compares the current
business conditions in relation to the previous six months.
CSI gained 3.4 points as compared to the previous period.
This shows that the economy has picked up as per industry
assessment.
Expectation IndexThe Expectation Index reflects the perceptions of Indian
industry with regard to the performance of their company,
their sector and the economy in the next six months (April-
October, 2006-07). The Expectation Index gained 2.0
points over the last survey reflecting higher expectations in
terms of performance in the next six months.
th66 CII BUSINESS OUTLOOK SURVEYOctober-March 2006-07
Confederation of Indian Industry
Index Apr-Sept’06-07
Oct-March’06-07
1. Business Confidence Index
69.3
71.8
2. Current Situation Index
66.3
69.7
(i) The Indian Economy
66.8
70.0
(ii) Own Activity Sector
66.3
69.2
(iii) Own Company
66.3
70.2
3. Expectations Index
70.8
72.8
(i) The Indian Economy
68.5
71.2
(ii) Own Activity Sector
69.3
72.7
(iii) Own Company
72.5
73.5
1CII Economic Policy
October-March 2006-07
50% of the respondents experienced capacity utilization in
this range. About 10 % respondents witnessed capacity
utilization above 100% as compared to 15% in the earlier
half. But businesses expect better capacity utilization for
October-March period of current fiscal with 58%
expecting this to lie between 75-100% and 24% expecting
it to cross 100% mark. This is again an improvement from
the levels of April-March period of 2006-07 when only
56% of the respondents had expected it to lie between 75%
and 100% range.
Value of ProductionThe value of production for 79% of the respondents
increased during April-March of 2006-07 compared to
75% during the October-March period of last fiscal. The
survey has revealed that 83% of the respondents foresee an
increase in the value of production in the second half of
2006-07, which is also an improvement from 81% who
expected an increase for April-September period of 2006-
0.7
New Orders The increase in production expressed by majority of the
respondents is also well supported by increase in new
orders. During April-September period (2006-07), 78% of
The non-manufacturing firms have a higher confidence in
terms of EI (75.5) than the manufacturing sector (72.3).
Economic Growth As many as 61% of the respondents expect GDP growth for
the year 2006-07 to be in the range of 8%-9%. Out of this,
the larger proportion (32%) felt that GDP would grow at
somewhere between 8.5%-9%. This reflects a significant
increase in business confidence as compared to GDP
growth expectations revealed six months ago when a
majority felt that it would increase in the range of 8-8.5%.
Interestingly, 22% of the respondents felt that the
economy can grow at greater than 9% in the current fiscal.
II. BUSINESS PROSPECTS
In this section, we examine the growth prospects of
components such as investment, capacity utilisation,
production, employment and exports that build up the
business confidence index.
Capital InvestmentThe survey reveals that 85 % of the respondents would like
to make additional investments during 2006-07. A similar
trend was observed in the previous survey when 88% had
planned undertaking expansion in investment.
Capacity Utilisation
A significant 52% of the business respondents had capacity
utilization in the range of 75-100%. This is an
improvement from the last corresponding result when
2
CII Economic Policy66th CII Business Outlook Survey
result of the second half of the last financial year when only
44% had reported increase in inventory level and another
20% reporting a decline in it. Future expectation for the
current half of the ongoing financial year appears to be even
higher with 58% expecting inventory level to increase.
Price of Raw Materials A majority of 88% respondents said that the prices of their
raw materials had increased in the first half of the current
year which is a significant rise from 80% reporting the
increase in the second half of the previous financial year.
However, a fewer 73% felt that the prices of raw materials
would increase in the second half of the current year. But
even this is an increase from 62% expectation expressed for
the first half of the current year. Overall, hence, there is a
likelihood of pressure on margins especially in the
manufacturing sector, where the majority of expenses are
incurred on raw materials.
III. EXPORTS
For period April–September 2006, 59% of the
respondents revealed that volume of exports had increased,
which is same as reported for the October-March period of
last financial year. As regards the expectations about the
second half of 2006-07, respondents weighed future even
better as 73% of them expressed confidence in exports
expansion. In terms of value of exports and new orders
from different countries, similar trends were observed
showing higher expectation for the second half. About
61% respondents recorded increase in both value of
the respondents experienced an increase in the quantum of
new orders as compared to 74% who witnessed increase
during October-March of 2005-06.
Reflecting the growing confidence of the business in the
economy, an even higher 80% expected this order to
increase during the October-March period of 2006-07.
EmploymentDespite buoyancy in overall economy and business
activities, the evidence of increase in employment is not
very strong. Half of the respondents felt that employment
had increased during the April-September period of the
current fiscal whereas 49% felt it had not. There is very
little to suggest that employment had declined with only
1% supporting this view.
More promisingly, employment is expected to increase
during October-March of 2006-07 with 56% business
respondents feeling this way against 43% believing that it
would remain constant.
Inventory levelsAbout 52% of the respondents witnessed an increase in
inventory during April-September 2006-07 whereas 36%
reported no change in it. Only 12% experienced decline in
inventory during this period. This is a clear shift from the
3October-March 2006-07
66th CII Business Outlook SurveyCII Economic Policy
exports as well as new orders for exports and expected that
this would go up to 71% for the second half.
Procedural DelaysProcedural delays still stand to be a major problem for
exporters. This has been a long-standing hurdle for
Study Team: Marut Sen Gupta (Head - Economic Policy), Danish A. Hashim, Sharmila Kantha, Maanendra Singh, Sangeeta
Ghosh and Malabika Nandi.
Please Contact: Marut Sen Gupta for details (marut.sengupta@ciionline.org)
exporters, which raises transactions cost. During this
survey, about 67% of the respondents felt those procedural
delays have not decreased. And 73% of the respondents still
expect the procedural delays to remain at the existent levels
in second half of 2006-07 as well.
IV. COVERAGE & METHODOLOGY
thCII's 66 Business Outlook Survey covers all industry
sectors, including small, medium and large enterprises
from different regions. The survey covered responses of
150 member companies across a spectrum of industry
groups both in public and private sectors.
The CII Business Confidence Index is constructed using a
weighted average of the Current Situation Index and the
Expectations Index. Each of these indices are based on
three questions on the performance of the economy,
activity sector and own company. Respondents are asked to
rate the current and expected performance on a scale of 0 to
100. A score above 50 indicates positive confidence while a
score above 75 would indicate strong positive confidence.
In the construction of the two sub indices, the highest
weight is given to the questions related to the performance
of the individual company, and the lowest weight is
assigned to the questions on the economy. The weights are
assigned on the basis of the premise that the average
respondent would possess more detailed and accurate
knowledge on the current and expected performance of his
own company than the economy as a whole.
October-March 2006-074
CII Economic Policy66th CII Business Outlook Survey
Confederation of Indian IndustryIndia Habitat Centre, 4th Floor, Core 4A, Lodi Road, New Delhi – 110 003, India
Tel: 91-11-24682230-35 • Fax: 91-11-2465307, 24682229 • Email: ciico@ciionline.org • www.ciionline.org