Indian industry is deeply apprehensive about the slowing down of the growth momentum with the outlook for exports, investments, employment and profit taking a severe hit, says a FICCI survey.
Business Confidence Survey (BCS) by FICCI revealed that the Overall Business Confidence Index registered a decline from 68.4 in the last survey to 61.2 in the present survey. The values of the three indices computed by FICCI – Current Conditions Index, Expectations Index and Overall Business Confidence Index – have touched a five-year low.
The survey for the second quarter of fiscal 2007-08 drew responses from 321 companies from a wide geographical and sectoral spread, with turnover ranging from Rs one crore to Rs 8,000 crore.
The respondents were largely from sectors such as cement, pharmaceuticals, textiles and apparel, leather, FMCG, heavy equipment and machinery, financial services, paper, metal and metal products, chemicals, IT, auto & auto ancillary, and steel.
The survey notes that previously only export-oriented units bore the brunt of an appreciating rupee, but now even companies that are peripherally connected with exports are getting hit.
The policy implications are clear: first, RBI must review its credit tightening policy and slowly make it more accommodative, and second, efforts should be made to prevent any further appreciation of the rupee since failure would send the industry into a downward spiral making recovery particularly difficult.
The survey conducted in November 2007 clearly showed the immediate need for remedial measures to arrest the slowdown in the growth momentum in the economy.
The survey results show that there is considerable sluggishness in the industrial and services sector, and that we may have moved beyond the first-round impact of an appreciating rupee and hardening interest rates.
The feedback showed that the impact of a slowdown in exports is being felt even in sectors that are not directly involved in exporting activity, such as textile machinery manufacturers, whose performance has been affected by the drop in the country’s textile and apparel exports.
While earlier surveys showed rising interest rates affecting industries that had a direct exposure to consumer spending, the current survey shows that the intermediate and capital goods industries are also witnessing a slowdown in growth.
The rise in the cost of raw materials is also adversely impacting the performance of Indian companies. With oil prices hovering around the US$100 per barrel mark, continued uncertainty with regard to the fallout of the US sub-prime crisis and RBI maintaining its tight monetary stance, members of corporate India are apprehensive about the country’s economic and industrial performance in the near future.
According to 53 per cent of the participating companies in the survey, the current overall economic conditions are ‘moderately to substantially better’ vis-à-vis the last six months. In the last survey, 70 per cent of the respondents had reported likewise.
In regard to firm-level performance, those reporting improved current performance declined from 64 per cent in the last survey to 54 per cent in the current one.
There is a sharp fall in the proportion of respondents from the light industry citing improved performance over the last six months. This number has come down from 62 per cent in the last survey to 35 per cent in the current survey.
On performance in the coming six months, it is again the light industry where the sentiments have taken the strongest hit. While 58 per cent of the respondents from this industry were optimistic about their near-term performance during Q1 2007-08, this proportion has fallen to 30 per cent in the current survey.