Thursday, April 2, 2009

Business Confidence ...

Today's ToI carried an article about falling inventories with Indian businesses. This is rather heartening. If we look at this carefully, there could be two reasons for this.

One, businesses scaled down orders which they placed on their suppliers, and this affected entire supply chains. Two, that demand is picking up. If its the former, then it becomes clear that businesses took the slowdown far more seriously than they should have. Assuming slowdown in demand, businesses would have adjusted demand forecasts, and this would have led to scaling down of orders placed on suppliers, who in turn would have done similarly with their suppliers, all the way through the supply chain. If the latter, then this is indeed very heartening, because this means that demand is rising, which is a healthy sign. However, even if the former, this is a healthy sign, because what this means is that business confidence was lower than what it should have been.