Bearish India Inc may not pull down growth

Economy seen on track despite falling business confidence

Despite falling business confidence across various sectors, economic think tanks are not revising their growth forecasts for the current fiscal. Estimates of economic growth in 2004-05 vary between 5.5 per cent and 6.5 per cent as against the government's target of 6.5-7 per cent.

Inflation projections for the fiscal range from 5 to 7 per cent, with a drop in inflation levels expected next week onwards on account of the high base. The government had targeted an inflation of 5-5.5 per cent in the current fiscal.

Business expectations have taken a beating in the first quarter of the fiscal. The Business Confidence Index (BCI) of the National Council for Applied Economic Research (NCAER) has dipped 11.6 per cent to 131.2 in the April-June period, with companies lowering their sales and profit outlooks for the next six months.

Rising crude prices, higher inflation and uncertainties regarding central government policies mean that India Inc sees no major improvement in the investment climate and hence expects lower job creation and no major hike in wages.

A survey on 414 companies carried out by the Federation of Indian Chambers of Commerce and Industry (Ficci) also said that more than 200 top corporates expect flat or even shrinking profit growth in the months to come.

The Ficci business confidence survey, conducted during July-August 2004, found that the fall in confidence was due to the delayed monsoon, hardening crude prices, rising inflation and commodity prices.

"The BCI is only one of the elements which goes into the forecast of where the economy is headed," said Suman Bery, director-general, NCAER. He added that there was no reason to revise its quarterly forecasts on the economy due to the survey results.

The Institute of Economic Growth, which bases its forecasts on an econometric model of the economy, said gross domestic product (GDP) growth, a measure of the goods and services produced in the economy, will not cross 6 per cent in the current fiscal.

"Agriculture is not likely to grow by more than 2 per cent and growth in other sectors is unlikely to be of the magnitude required to pull up overall economic growth above 6 per cent," said IEG Director BB Bhattacharya. Inflation was likely to range between 6.5 and 7 per cent if oil prices do not rise any further, he added.

Inflation levels were likely to slide on account of the high base effect of inflation in end-August and September 2003, said Subir Gokarn, chief economist of Crisil.

The year as a whole would see a WPI-based (wholesale price index) inflation level of about 6 per cent, he added.

ICRA has projected a GDP growth of around 6.6 per cent in 2004-05, based on an 8 per cent growth in the non-agricultural sector, the same level as in the previous year. Agriculture is expected to grow at about 2 per cent in 2004-05.

Higher energy and steel prices will keep inflation relatively high. The current fiscal was likely to close with an inflation level of 5.5 per cent, said Saumitra Chaudhuri, economic advisor, ICRA.