Business confidence of India Inc hits new low

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Business confidence of India Inc hits new low

According to the FICCI's latest business confidence survey, business and industry have not fared well in the past six months. The situation is likely to persist. In fact, the confidence level of India incorporated has dipped further.

CJ: Mineguruji

Sun, Apr 27, 2008 16:30:53 IST

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Business News India :

HIGH INTEREST rate regime, appreciating rupee, rising cost of industrial inputs and raw materials have come together to knock the confidence of the Indian business and industry. Around 50 per cent of the companies, which participated in a business survey, have said that overall economic conditions have deteriorated in the past six months.

In contrast, only 19 per cent companies had reported a negative outlook of the overall economy six months back, according to the Federation of Indian Chambers of Commerce’s (FICCI) latest business confidence survey. Not only this, there is more pessimism in store as business and industry are not optimistic about the overall economic growth in the next six months as well, in fact, one/third of the respondents feel that the situation may worsen.

However, one positive aspect, which came out of the survey, is that 54 per cent of the participating firms have reported that its investments are likely to increase in the next six months. This is opposed to only 33 per cent of people, who had given a positive outlook in the last survey.

According to the FICCI survey, the ’Current conditions index’ has dipped from 59.3 in the last survey to 54.5 in the current survey. The ’Expectations index’ has moved down from 62.2 in the last round to 55.7 in the current round. The overall business confidence index has recorded a decline from 61.2 in the last survey to 55.3 in the present survey.

In fact, according to the survey report, confidence level of India incorporated, which had dropped to a five-year low in the last survey, has dipped further. The evolving economic situation, slowing growth, booming inflation has dented the confidence of people in business.

From across various sectors, companies have reported rising raw material prices, which will have an adverse impact on performance. Although the stabilisation of the rupee vis a vis dollar has helped, but majority of the companies feel that the appreciation of the rupee has reduced its competitiveness.

On the efficacy of fiscal stimulus that was provided in the Union Budget 2008-2009 in the form of an across the board excise duty cut of two per cent, the industry is divided with a majority saying that this would only help them maintain prices for some more time in an otherwise rising costs environment. Companies have reported that the rising interest rates have done considerable damage to growth and that the Reserve Bank of India (RBI) should take steps to reverse the upward movement in the interest costs.

The assessment for current industry performance also shows a good deal of moderation with just 36 per cent of the companies reporting improved industry performance over the last six months.

The outlook for profits has taken a beating with almost 38 per cent of the participating companies reporting a likely dip in profits in the coming six months. Amongst these sectors, it is the light industry, which is most pessimistic with regard to its outlook for profits. Further, nearly a third of the participating firms from the heavy industry sector reported that they would see a fall in their profits over the next six months.

Sector-wise analysis of the performance reveals that while the trend of weakening current performance with regard to the heavy industry and the light industry has further accentuated in the current survey, the services sector is seeing some improvement in its performance.

As regards performance over the next six months, it is again the heavy industry and the light industry where the sentiments have taken the strongest hit. While in the case of the heavy industry about 39 per cent of the participating companies are optimistic about their near-term performance, in the case of the light industry this figure stands at a modest 19 per cent.

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