Stagnancy in reforms,high interest rate major concerns: Survey

Mumbai: The CII Business Confidence Index (CII-BCI) for July-September 2012 fell by 3.7 points to 51.3, after rising to 55.0 in April-June 2012 from 52.9 in the previous quarter.

"The falling index value is reflective of the low business sentiments that has been prevailing for the last few quarters," Confederation of Indian Industry Director General Chandrajit Banerjee said in a statement here.

The 80th Business Outlook Survey reveals that stagnancy in reforms is the top concern of most firms, followed by slackening consumer demand and high interest rates.

"CII has been recommending implementation of reforms in the areas of indirect taxation, land acquisition, fast clearances of pending infrastructure projects and fiscal consolidation in order to improve business confidence and revive the growth outlook for the economy.

Given that slackening demand is now a key concern, the RBI should not have any reservations about reducing interest rates," Banerjee said.

The survey reveals that majority of the respondents witnessed stagnancy in their overall sales, new orders, value of production, inventory levels and employment in the first-quarter of 2012-13.

Rising input costs continues to be a major worry for firms. Majority of the firms recorded an increase in raw material costs, electricity & fuel cost and cost of wages & salaries during April-June 2012 compared to the previous quarter.

Expectations for the quarter ending September 2012 show that a majority of firms still expect these costs to increase, though the proportion of respondents expecting an increase is lower than in the first quarter.

Almost all the firms reported either an increase or no change in the cost of credit and a majority continues to expect no change in the second quarter. In a worrying trend, an overwhelming majority of respondents (86.3 per cent) saw their availability of credit decline or remain unchanged in the period April-June 2012 mainly due to high interest rates prevailing in the economy.

Expectations for the second-quarter 2012-13, too, reveal almost similar trend, with bulk of the respondent companies (83.8 percent) expecting the availability of credit to remain stagnant or post a decline, in contrast to minority (16.2%) expecting an increase in credit availability.

Reflecting the grim domestic policy scenario, investment sentiments have weakened considerably.

However, on a positive note, the survey showed that 56.1 per cent of the respondents expect domestic investments of their companies to rise in the second-quarter of 2012-13 compared to the first quarter, while 39.5% expect it to show a decline or not change.

In contrast, most of the respondents (42.6 per cent) expect international investments to show a decline or no change in the second-quarter of 2012-13, while 34.7 per cent of respondents expect it to record any increase.