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'Biz confidence up, but oil prices cause concern'

India Inc is beaming with optimism as its business confidence index has steadily risen to reach the highest ever.

india Updated: Feb 03, 2006 14:45 IST

India Inc is beaming with optimism as its business confidence index has steadily risen during the last quarter to reach the highest ever, though rising input costs and volatile oil prices have begun to impact its balance sheets, economic think tank National Council for Applied Economic Research (NCAER) said on Friday.

Continuing its upward march that began in 2001-02, the Business Confidence Index (BCI) for October-December 2005 touched 151.4 points from 146 in July-September 2005, NCAER said in its report.

The optimism in this round picked up as BCI shot up by 3.7 per cent as compared to 0.4 to 1.3 per cent growth in the previous three rounds. The index is at the highest level since November 1994, the latest quarterly review said.

The steady increase in BCI is in line with the growth trend in industrial production and manufacturing sector GDP.

NCAER observed though industry was performing better despite high and volatile crude prices, the oil price scenario started impacting both the top and bottom lines.

Net sales of over 3,640 registered firms, monitored in this round, increased by 17.5 per cent during the first half of 2005-06. This is, however, down from the 21.7 per cent growth witnessed in first half of 2004-05.

Profitability, too, declined in first half this year. Growth in Profit after Tax declined from 34.8 per cent in the first half of 2004-05 to 20.0 per cent in April-October 2005.

"This suggests that profitability is being stretched and firms are insulating consumers from rising commodity prices. But since margins are stretched to the limit they may now start passing on their higher costs to consumers," it said. More

The rating for firm level indicators - the financial position of the firm and capacity utilisation - rose by 1.2 and 0.9 per cent respectively, it said.

NCAER said the Political Confidence Index also improved marginally by 0.9 per cent and at 110.1 reflects a stable outlook from the business community with regard to the overall performance of the government.

In comparison to the previous quarter, the performance of the UPA government has improved with regard to managing overall economic growth, government finances, exchange rate and pushing economic reforms forward.

However, performance deteriorated with regard to managing inflation, unemployment, the political climate and external trade negotiations, the think tank said.