India Inc cagey about short-term growth

Macroeconomic and Monetary Developments: First Quarter Review 2007-08.

Corporate India does not share an optimistic outlook for the economy in the short term, according to business confidence surveys conducted by the Reserve Bank of India and two other agencies.

According to the Reserve Bank's industrial outlook survey conducted during June 2007, the business expectations index based on assessment for April-June 2007 declined by 5.8 per cent over the previous quarter.

The RBI today released the "Macroeconomic and Monetary Developments: First Quarter Review 2007-08" to serve as a backdrop to the first quarter review of the annual statement on monetary policy for 2007-08. The business expectations index for the second quarter of FY08 declined by 3 per cent over the previous quarter. 
 

BUSINESS EXPECTATION  SURVEYS (Per cent)
Agency	Business Expectations		Growth  over a  years ago	Growth  over  pervious rounds
	Period	Index
Dun &  Bradstreet 2007	April- June Index	Business Optimism	13.3	3.4
NCAER	July- Confidence Index	Business	-2.7	-8.8
Reserve Bank of India	July- September 2007	Business Expectation Index	-4.3	-3.0

On a year-on-year basis the indices based on assessment and expectations were lower by 4.9 per cent and 4.3 per cent, respectively, than a year ago.

The decline in expectations index for July-September 2007 was on account of a fall in net responses for most of the parameters of the survey such as overall business situation, production, working capital finance, order books, capacity utilisation, exports, employment and profit margin.

Net responses were, however, higher than the previous quarter in the case of imports and selling prices. For most of the parameters, the maximum proportion of respondents was placed in the category no change in expectations over the preceding quarter.

The survey conducted by the National Council of Applied Economic Research (NCAER) in June 2007, also indicated a decline in the the overall business confidence index (BCI) for July-December 2007 by 8.8 per cent over the previous quarter. All the four main components of the index, which includes overall economic conditions, investment climate, financial positions of the firms and capacity utilisation registered a fall.

Amongst various industry sectors, the decline in BCI over the previous round was 2.8 per cent for consumer non-durables and 15.6 per cent for capital goods.

A Dun & Bradstreet survey showed an 3.4 per cent increase in the business optimism index in the first quarter of 2007-08. Four of the six optimism indices, which include volume of sales, net profits, selling prices and new orders, however, declined during the period. The capital goods sector was positive on most parameters, while consumer goods sector was the least optimistic on expectations for April-June 2007.

Though the short term growth expectations may be looking hazy, agencies are however optimistic that for the year 2007-08 India's real GDP is expected to grow anywhere around nine per cent.

The steady increase of industry share in overall bank lending has brought some optimism. Banks' lending to the commercial sector showed some moderation during the first quarter of 2007-08, from the high growth levels of the preceding three years.

The share of industry, particularly infrastructure and agriculture increased in the advances made during the quarter even as the share of personal loans, led by housing loans, fell during the period.

Non-food credit at the end of July 6, 2007 grew 24.4 per cent from a year earlier, compared with 28.4 per cent at end-March 2007 and 32.8 per cent a year ago.

Banks' incremental credit deposit ratio on a year-on-year basis fell to 70.2 per cent on July 6, 2007 from 96.4 per cent a year ago and 110 per cent at the end of March 2006. About 39 per cent of the incremental non-food credit upto May 2007 was absorbed by industry and 15 per cent by agriculture, compared to 35 per cent and 12 per cent, respectively, at the end of December 2006.

The infrastructure sector alone accounted for around 25 per cent of the incremental credit to the industry. Personal loans accounted for around 24 per cent of the incremental non-food credit down from 29 per cent at the end of December with the share of incremental housing loans at around 11 per cent.