High
inflation combined with the
fear of further rate hikes by the Reserve Bank of India (RBI) has
dampened the business confidence of India Inc for the April-June quarter, says a survey by the Confederation of Indian Industry (CII).
The Business Confidence Index (BCI) declined from 66.7 in the January-March quarter to 62.5 for April-June 2011, according to CII's quarterly Business Outlook Survey.
The survey reveals that 82.5 per cent firms in the manufacturing sector and 41.7 per cent of the companies in the services sector experienced a rise in overall input costs in the last quarter of 2010-11. The majority of them expect inflation to remain high in the coming months.
Inflation has been above the eight per cent mark since January 2010, much above the government's comfort zone of around five per cent, with the headline inflation being 8.66 per cent in April.
"Persistent high inflation and subsequent monetary tightening in the last one year has resulted in a rise in wages as well as interest costs," the survey says.
"Rising commodity prices, especially oil prices, and monetary tightening due to stubbornly high inflation has resulted in companies facing severe rise in input costs," it adds.
The top three business concerns are high raw material cost, infrastructural shortages and high interest rates.
"Growing economic and political uncertainties in the global market as well as rising raw material costs and infrastructural shortages have kept sentiments weak, thus pulling the overall business confidence index down," the survey says.
About 33 per cent of the respondents say that India's economy is expected to grow in the 8-8.5 per cent range this fiscal while about 50 per cent expect inflation for 2011-12 to be above eight per cent, it says.
NUMBERS THAT SAY IT ALL
The Business Confidence Index (BCI) fell from 66.7 in the Jan-March quarter to 62.5 during April-June. It said that 82.5% firms in the manufacturing sector and 41.7% companies in the services sector experienced a rise in overall input costs in the fourth quarter of 2010-11
Persistent high inflation and subsequent monetary tightening in the last years have led to rise in wages as well as interest costs
Rising commodity prices, especially of oil, besides monetary tightening due to stubbornly high inflation have led to severe rise in input costs for companies
SUNNY SIDE
On a positive note, 61.3 % of the respondents have not changed their investment plans despite the rising interest costs
Also, availability of credit does not appear to be a major concern, despite tight monetary policy |
The survey also hints at a slight slowdown in sales offtake in April-June 2011. Also, the share of people who expect production to decrease in April-June 2011 has gone up substantially.
On the positive side, the survey reveals that 61.3 per cent of the respondents have not changed their investment plans despite rising interest costs. "Also, most of the respondents witnessed an increase in pre-tax profits during January-March 2011 and continued to expect an increase during April-June 2011, despite rising raw material and interest costs," it says.
Availability of credit does not appear to be a major concern among respondents, despite tight monetary policy and most people do not expect any change in the status of availability of credit.
The RBI has increased its key policy rates nine times since March last year to curb inflation.
Experts have said the central bank is likely to hike rates again during its next mid-quarterly review in June.
The majority of the 300 companies that participated in the survey, which was carried out over a month ending mid-May 2011, foresaw an increase in spending on capacity expansion during the April-June period as compared to the previous quarter.
Courtesy: Mail Today 
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