Business confidence index slips again.
By R. Chandrasekaran
CHENNAI: Though the Indian government has been taking a number of positive measures in the last nine months, it appears that it has failed to boost business confidence, a survey by the Federation of Indian Chambers of Commerce and Industry (FICCI) revealed.
It found that the Overall Business Confidence Index slipped for the second straight quarter to 57.4 in the fourth quarter of the fiscal year 2013 from 61.2 in the third quarter. A major worry is that participants did not seem to be very optimistic about the expectations during the next six months.
Weak demand is found to be another major worrying factor for the participants that could hamper the overall business performance. There was also a small increase in the proportion of respondents that voiced concern over the cost of credit, which indicate that companies are not confident about their sales scenario and profit margin during the next two quarters.
About 36 percent of the participating companies indicated that the current economic condition is moderate to substantially better than the last six months. The corresponding figure in the third quarter was 45 percent, and it was 38 percent a year back.
Similarly, on the expectations during the next two quarters, approximately 49 percent of the respondents indicated an improvement in the overall economic conditions compared to the first six months of the fiscal year ended March 2013.
The survey drew responses from companies in different sectors and geographical regions. In all 200 companies with a turnover ranging from Rs. 1 million to Rs.1 trillion participated. Among sectors included were textiles, cement, financial services, chemicals, metal and metal products, automobiles, FMCG, electrical equipment and machinery, paper and paper products. The survey was conducted in March and April with a view to gauge the expectations of the corporate sector for the period between April and September.
In spite of the continued economic weakness, FICCI believes that its survey shows that the industry is hopeful on the investment front in the coming months. Its belief comes on the back of a recent decision by the Cabinet Committee on Investments (CCI) to speed up the process of approving projects that had the potential to unlock huge investments in core sectors of the economy.
Secondly, in its next meeting later this month, the trade body expects the Reserve Bank of India to trim down its policy rates on top of a 75 basis points reduction in interest rates announced by it so far in 2013. FICCI said the moderate upside in IIP and export numbers suggests springing of green shoots and it is important to keep nurturing them.
Interestingly, amidst a general impression that banks are not passing on the interest rate cut to customers, the survey respondents indicated a marginal fall in interest rates for both working capital and term loans during the last two quarters. The survey also pointed out that close to 74 percent of the participants have emphasized the importance of banks support by reducing lending rates at the current scenario to support investments and overall growth in the economy.
The survey results could possibly represent the views already expressed by rating agencies, such as Standard & Poor’s and Moody’s ,that though the government’s recent steps were positive, they were not enough to stimulate growth. The RBI, too, had similar views.