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Corporate India’s business confidence hits a five-year low: FICCI Survey

Author | exchange4media News Service | Thursday, Dec 06,2007 6:34 AM

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Corporate India’s business confidence hits a five-year low: FICCI Survey

The latest FICCI Business Confidence Survey indicates that the Indian industry is deeply apprehensive about the slowing down of the growth momentum with export growth dipping and the rising rupee taking a toll on even the intermediate and capital goods sectors. These grim sentiments are brought out by the declining values of the confidence indices computed by FICCI.

The Survey reveals that the Overall Business Confidence Index has recorded a decline from 68.4 points in the last survey to 61.2 points in the present survey. In fact, 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 outlook for exports, investments, employment and profit has taken a severe hit.

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. Initially the high interest rates affected the consumer goods industry, but now even the intermediate and capital goods sectors are getting impacted. The raw material supplier industries are also getting affected and these rising costs are impacting the profitability of firms. Finally, with exporters eyeing the domestic market, there is crowding in the internal market.

With the rupee appreciating by almost 14 per cent against the dollar over the last one year, several exporters are shifting focus towards the domestic market. Such a move has resulted in excessive supplies in the domestic market and increased the pricing pressure for certain industries.

The policy implications emanating out of the present Survey 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. Failure on any one of these counts would send the industry into a downward spiral and make recovery particularly difficult.

The present round of the Survey was conducted in November 2007 and the results clearly show the immediate need for remedial measures to arrest the slowdown in the growth momentum in the economy.

The FICCI Business Confidence Survey for Q2FY08 drew responses from 321 companies from a wide geographical and sectoral spread. Companies participating in this Survey had turnover ranging from Rs 1 crore to Rs 8,000 crore. Respondents to the Survey 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 and auto ancillary and steel.

With regard to expectations about performance during the next six months, the results show a significant moderation in the views of the Survey participants. In the last Survey, 68 per cent of the companies had reported that overall economic conditions would improve in the next six months. In the present Survey, this figure is down to 52 per cent. Expectations regarding near term industry and firm level performance, too, are muted with the proportion citing improved performance coming down from 63 per cent in the last Survey to 47 per cent in the current Survey (industry), and from 74 per cent in the last Survey to 62 per cent in the current Survey (firm).

Sector-wise analysis of the responses reveals that the trend of weakening performance with regard to the services industry and the heavy industry sectors of the economy continues. However, what is important to note is the 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.

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