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Business sentiment revived in the second quarter with the Business Confidence Index showing an increase of 6.3 per cent on a quarter-on-quarter basis a survey by economic thinktank NCAER said.

“The 94th round of the Business Expectations Survey (BES) carried out in September 2015 shows a revival of business sentiments after the Business Confidence Index (BCI) fell for two consecutive quarters.

“The BCI shows an increase of 6.3 per cent in October 2015 over July 2015 on a quarter-on-quarter (q-o-q) basis. However the BCI continues to fall on a year-onyear basis (9.1 per cent)” said a survey by economic think-tank National Council of Applied Economic Research (NCAER) today said.

NCAER’s fellow Bornali Bhandari said that the economy showing signs of bottoming out but the recovery remain weak and fraught with uncertainty. There is improvement in business sentiments and stabilising of political sentiments.

“The improvement in sentiments of small and medium enterprises is the best signal that this survey shows. The capital goods and servicessectors also show improvement in sentiments” Bhandari said.

The economic think-tank said barring the Rs 500-crore plus companies which show a q-o-q decline in the BCI all firms showed improvement.

The Business Expectations Survey (BES) tracks business sentiment of over 500 Indian companies.

Highlights of NCAER’s most recent Business Expectations Survey for Quarter 2 2015–16

• The 94th round of the Business Expectations Survey (BES) carried out in September 2015 shows a revival of business sentiments after the Business Confidence Index (BCI) fell for two consecutive quarters. The BCI shows an increase of 6.3% in October 2015 over July 2015 on a quarter-on-quarter (q-o-q) basis. However the BCI continues to fall on a year-on-year basis (9.1%).
• All but one of the four components of the BCI show improvement in sentiments between July and October 2015. Three components showing improvement in terms of percentage of respondents in October 2015 versus July 2015 are ‘overall economic conditions will improve in the next six months’ ‘financial position of firms will improve in the next six months’ and ‘present investment is climate is positive compared with six months ago’. The percentage of respondents saying that ‘present capacity utilisation is close to or above optimal level’ declines from 93.5% in July 2015 to 91.3% to October 2015.
• All five sectors show improvement in business sentiments in October 2015 on a q-o-q basis. The services sector has the highest BCI followed by intermediate goods consumer non-durables consumer durables and capital goods in this current round. The BCI of the intermediate goods sector shows the highest q-o-q increase of 14.6% followed by the services sector (8.8%).
• All but the West show improvement in the BCI. The BCI of the South shows an increase of 25.9% followed by the East (3.7%). The BCI declines in the West by 3.9%.
• Barring the ` 500 crore plus companies which show a q-o-q decline in the BCI all other firms show improvement. Firms with an annual turnover of less than ` 1 crore which have the lowest BCI show 10.5% q-o-q growth in BCI. The ` 1–10 crore firms show an improvement of 7.2%. The maximum increase has been experienced by ` 100 –500 crore firms (15.2%).
• The distribution of firms by ownership type reveals improvement in the BCI in all but the public sector companies with private limited companies rising the maximum (8%). The BCI of public sector companies has fallen by 6.3%.
• Overall sentiments regarding production domestic sales exports imports of raw materials pre-tax profits and costs are dampened in October 2015 compared to July 2015. Significant exceptions to the overall trends are the capital goods and service sectors. Labour markets continue to be weak as expectations about hiring have only worsened from the last quarter.
• The slide in the Political Confidence Index (PCI) seems to be stabilising in October 2015 when it shows a q-o-q rise of 0.3%. Components that show an increase in positive responses between July and October 2015 are ‘managing inflation’ ‘managing overall economic growth’ ‘managing conducive political climate’ and ‘managing unemployment’. Components showing a decline in positive responses in the same period are ‘managing government finances’ ‘managing exchange rate’ ‘external trade negotiations’ and ‘pushing economic reforms forward’. Increase or decrease in positive responses notwithstanding the percentages of positive responses are not more than 60% for any of the PCI components. The percentage of positive responses is the worst for ‘managing exchange rate’ (28.5%) followed by ‘managing unemployment’ (34.9%) and ‘managing inflation’ (37.9%). The best performing parameters are ‘managing overall economic growth’ and ‘external trade negotiations (both bilateral and multilateral)’ with the percentage of positive responses being 58.8% and 55% respectively.

Dr Bornali Bhandari Fellow NCAER noted “the economy shows signs of bottoming out but the recovery remain weak and fraught with uncertainty. There is improvement in business sentiments and stabilising of political sentiments. The improvement in sentiments of small and medium enterprises is the best signal that this survey shows. The capital goods and services sectors also show improvement in sentiments. However the percentage of respondents saying that ‘present investment is climate is positive’ remains at 43.3% in October 2015 thereby signalling that investment sentiments still remain subdued. And the continued weak expectations on hiring labour in the next six months and weak confidence in ‘managing unemployment’ imply that improvement in business sentiments may not necessarily translate to more jobs in the near future.”

Brief Methodology: The National Council of Applied Economic Research (NCAER) has been conducting the Business Expectations Survey (BES) every quarter since 1991. It tracks the business sentiments of more than 500 Indian companies to compute a composite index the Business Confidence Index (BCI). The survey consists of responses from firms/industries across six cities to assess business sentiments in four regions of India. Delhi NCR represents the North Mumbai and Pune represent the West Kolkata represents the East and South is represented by Bangalore and Chennai. Industries are adequately represented with regard to ownership type (namely public sector private limited public limited partnership/individual ownership and MNCs) industry sector (namely consumer durables consumer non-durables intermediate goods capital goods and services sector) and firm size based on their annual turnover (in the range of less than ₹1 crore ₹1 to 10 crore ₹10 to 100 crore ₹100 to 500 crore and more than ₹500 crore). The sample is drawn randomly from a list of industries in each city drawn from various sources. A sizeable number of units taken in one round are retained in the next round to maintain continuity of analysis.
The Business Confidence Index (BCI) is based on four questions that carry equal weight. Two questions are devoted to macro factors and the other two to micro factors. The BCI is a simple average of all the positive responses to three questions and on the fourth question (capacity utilisation) an average of the sum of the responses to improvement versus no improvement is taken. Then the BCI is compared with the base value to obtain the change. If the BCI increases for a particular round it is due to a larger proportion of positive responses in that round. The positive responses may increase for a specific question. An increase in the level of the BCI reflects optimism in the business sector about the performance of the economy.
About NCAER

NCAER the National Council of Applied Economic Research is India’s oldest and largest independent economic think tank set up in 1956 at the behest of Prime Minister Jawaharlal Nehru to inform policy choices for both the public and private sectors. Over nearly six decades the NCAER has served the nation well with its rich offering of applied policy research unique datasets evaluations and policy inputs to central and state governments corporate India the media and informed citizens. It is one of a few independent think tanks worldwide that combines rigorous economic analysis and policy outreach with data collection capabilities particularly for large-scale household surveys. The NCAER is currently led by its Director-General Dr Shekhar Shah and governed by an independent Governing Body chaired by Mr Nandan M. Nilekani.
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In what should come as some relief for the government India’s GDP grew at 7.4 per cent in the July-September 2015 quarter as compared to 7 per cent in the previous quarter driven by a resurgence in manufacturing growth. At 9.3 per cent the manufacturing sector grew the fastest in three years.

The study also said that the Dubai airline’s operations supported over 86000 Indian jobs and generated almost $1.7 billion in foreign exchange earnings in 2014-15.

Dubai’s Emirates airline which operated the largest number of international flights out of India until July this year when it was upstaged by the Jet Airways-Etihad Airways combine and a government refusal to grant it more flight rights quoted a study on Thursday to support its claim that its operations benefitted India’s economy making a case for additional flying rights.

The study commissioned by Emirates and conducted by the National Council of Applied Economic Research (NCAER) said the Dubai airline’s operations in India added $848 million to the country’s gross domestic product (GDP) supported over 86000 Indian jobs and generated almost $1.7 billion in foreign exchange earnings in 2014-15. An earlier study in 2012 conducted by NCAER for Emirates had said the operations added $596 million to the GDP and $1.1 billion in foreign exchange earnings in 2011-12.

Emirates which first flew to India in 1985 now operates 183 weekly flights to nine points across India. Nine out of 10 of these seats are full since 2008 and the airline has been pushing for permission to fly more—called bilateral rights—to India.

“We are confident that with increased capacity we can contribute even more to India’s economic growth and development by opening new conduits for trade and investment through our growing worldwide network” said Adnan Kazim divisional senior vice-president strategic planning revenue optimisation and aero-political affairs Emirat

The large number of flights operated by Gulf carriers such as Emirates and Etihad to India has become a bone of contention in international aviation with airlines in the US and Europe alleging that the Gulf airlines are actually cornering India-US fliers by routing them through their hubs in Dubai and Abu Dhabi. There is discontent in India as well since state-run Air India which gets to fly to the Gulf in return for the bilteral rights India awards to Emirates and Etihad is unable to do so thanks to its poor financial shape.
“The NCAER study underlines the importance of air transport and its role as an economic driver in India. Aviation facilitates trade and tourism and creates employment in many different industries” Kazim said.

Kapil Kaul chief executive officer (South Asia) at consultancy firm CAPA India said the NCAER study demonstrates and quantifies the economic and social impact of aviation—both direct and indirect—on the economy. “Such studies especially done by reputed economic research firms like NCAER can support the larger policy formulation. Investment in connectivity is critical for economic development but it is not fully understood and recognized in India” Kaul said.

He acknowledged that Emirates for obvious reasons will use the study to seek more bilateral rights adding such formal and strategic methods should be welcomed.

Kaul also pointed to the other side of the story. “I would also like to see a study on how much Indian traffic rights and enhanced connectivity is contributing to Emirates and Dubai’s economy- both direct and indirect. This study if ever done will be very interesting as it will estimate the enormous value of India’s traffic rights. Indian market and continuing access is critical for Emirates’ business plan” Kaul adde

Early this year Emirates’ rival Etihad Airways PJSC claimed its investments in India have benefited the country’s tourism and aviation sectors besides helping Jet Airways (India) Ltd stage a recovery after a long period of losses. In 2013 Etihad Airways had picked up a 24% stake in Jet Airways.

For both airlines the largest market is India.

In February 2014 the aeronautical authorities of India and the United Arab Emirates (UAE) negotiated the first expansion of seat entitlements since 2008.

As a result Dubai-based airlines including low fare airline flydubai (run by Dubai Aviation Corp.) were awarded an additional 11000 seats per week.

The NCAER study models the economic value of potential future bilateral increases and forecasts that if Emirates were to operate an additional 4500 weekly seats between India and Dubai an additional 4800 jobs would be created foreign exchange earnings would rise to $1.8 billion with the arrival of almost 40000 more tourists a year.

“If the bilateral arrangements were expanded to allow an additional 13849 seats per week NCAER forecasts that Emirates’ operations would support 100405 jobs a year contribute $987.8 million towards GDP and boost foreign exchange earnings to $2 billion per year. Considering the breadth of Emirates’ network and how the demand for air travel is expected to double in the next 5-10 years in India Emirates is well positioned to bring a growing number of tourists and business travellers to the country further enabling trade and investment” Emirates said in a statement.

On 7 July Mint reported that Emirates’ domination of the international traffic to and from India had finally ceded the throne to domestic rival-Jet Airways.

Saurabh Bandyopadhyay project leader NCAER said the current NCAER report observed that Emirates makes an important contribution to the Indian air transport sector in terms of passenger traffic and foreign exchange earnings (FEE).

“The airline’s economic contribution to the air transport sector is seen to percolate to the economy at large through various multiplier effects. The study predicts further escalation of economic benefits for the Indian economy as Emirates grows the number of seats into India. This growth would result in direct economic contribution multiplier effect on output and job-creation along with an induced effect on tourism. Apart from the quantified benefits from Emirates’ operations in India the identified qualitative benefits also entreat an expansion of its operation in India” Bandyopadhyay said.

In September 2012 study NCAER said for every $1 that Emirates contributes in the Indian air transport sector it generates an additional $1.176 in the Indian economy. This means that the output multiplier for Emirates’ contribution in the Indian economy is 2.176 NCAER said.

On 16 June Mint reported that alarmed by Gulf airlines carving out a large slice of the lucrative India-US air traffic American Airlines Inc. United Airlines Inc. and Delta Air Lines Inc. had teamed up to protect their turf.

The three airlines on 5 March alleged that Dubai Abu Dhabi and Qatar collectively lavish subsidies worth $42 billion (around `2.7 trillion today) on the airlines they own—Emirates Etihad Airways and Qatar Airways respectively—tilting the playing field in their favour.

At the core of the squabble is the so-called sixth freedom traffic. Essentially sixth freedom is an airline’s right to fly from one foreign country to another stopping mid-way at its home base for non-technical reasons. For example when British Airways Plc. flies from India to the US via London it is protected by the sixth freedom right.

Capa expects growth of around 8-10% in international and close to 15% in domestic traffic this fiscal year.

This would result in international traffic increasing to 54-55 million and domestic traffic to around 80 million it said in a June report.