India Intelligence Report
 

   Business confidence index up 8%, says CII

 

Belying stock market reverses, a Confederation of Indian Industry (CII) outlook survey says that compared to six months ago, significant increase in business confidence has hiked growth expectations for the current financial year by over 8%. The increase of 2.1 points in the CII Business Confidence Index (CII-BCI) for April-September 2006 was significantly higher among non-manufacturing firms engaged in services compared with manufacturing firms.

Metric

Percentage

Those Planning to increase investment 88%
Those expecting to max capacity utilization 75%
Those expecting to exceed capacity utilization 25%
Those expecting value of production to increase 81%
Those who reported increase in value of production 75%
Those expecting increase in new orders 83%
Those who reported increases in new orders 74%
Those expecting to employ more people 53%
Those who reported increases in employment 50%
Those expecting export expansion 70%
Those who reported increased exports 55%

Despite such good news, 78% of the respondents said that Government induced procedural delays is increasing transactions costs and reducing margins.

Investment bankers say that while 2 mega special economic zones (SEZ) are being announced and a big rush to build other such projects has created new opportunities for the India's economy, there is still a lot of policy work pending. Morgan Stanley was quoted saying that while the SEZ policy has initiated over 100 applications to create SEZs, “real” SEZs will require major policy changes. The current SEZ policy consolidates the SEZ laws scattered across different legislation into one.

Since most of the new SEZs are miniscule in size, the scale-related advantage of an SEZ is not possible. They say that many of these proposed investments could be mere substitution of investments that would have otherwise taken place outside the SEZ area and that the new SEZ investments are unlikely to provide the much-needed boost to the Indian small and medium sector competitiveness. The only two SEZ announced so far are “real” ones and both by India’s largest private sector company Reliance Industries. However, even these are much smaller than the major SEZs operating in China in Shenzhen, Xiamen, and Zhuhai.

They say that SEZs have to be seen as means for creating larger inroads into small and medium scale manufacturing and for quick support to high-quality infrastructure. They should be provided a liberal and positive business environment leading to increased manufacturing exports.