• 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