 "Economy moving towards stagflation: CII survey of CEOs")
“Indicating that the economy is moving towards a situation of stagflation, majority of the respondents (42 per cent) expected inflation to increase moderately in the second half of the year,” CII said in a statement.
Stagflation refers to a situation where economic growth is too low and inflation is too high, leading to high unemployment levels. The situation indicates a dilemma for policymakers, since actions designed to cut inflation may aggravate unemployment.
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CII, however, did not elaborate why it dropped the word stagflation, as the respondents only talked about a moderate rise in inflation.
According to data released on Monday, inflation in both wholesale and retail counters rose for the month of September, driven by vegetable prices, particularly onions. Inflation stood at 6.46 points in Wholesale Price Index (WPI) terms, and 9.84 per cent on Consumer Price Index basis.
Most CEOs in the survey joined the league of independent analysts doubting the government's optimism over the economy clocking more than five per cent economic growth this financial year.
However, 32 per cent of them shared the government's projections. These respondents said the economy would register five to 5.5 per cent growth, while 42 per cent voted for 4.5 to five per cent. Notably, CII Director-General Chandrajit Banerjee did not rule out over five per cent economic growth in 2013-14. “We believe five per cent-plus growth is still not out of reach. With a significant improvement expected in the growth of agriculture output in the current year, we hope to see an upswing in the sectors, which have traction from rural demand.”
Sixty-five per cent of the respondents said they did not expect revival in investments before the second quarter of FY15. Political uncertainty was ranked as the highest risk factor affecting the business confidence of India Inc, according to CII’s CEO snap poll, conducted at its National Council Meeting. Commenting on the efficacy of the Cabinet Committee on Investment (CCI) in clearing large projects, 56 per cent of the respondents did not feel it had the intended impact on investments at the ground level.
“This clearly implies there is a need for strengthening policy intervention to revive investment demand by the government as well as RBI. Among other critical measures, the government should be focusing on stepping up its capital expenditure whereas RBI should be adopting a softer monetary stance,” added Banerjee.
With WPI inflation rising to a seven-month high in September, and the retail price inflation breaking a two-month downward trend, RBI might not agree to Banerjee's demand.
In an indication of easing current account deficit situation, 82 per cent of the respondents felt the value of rupee against the US dollar was favourably affecting their exports. Contrary to the expectation that low rupee will lead to increase in their import bill, 53 per cent of the business leaders felt their imports will remain unchanged during the second half of the year. Going forward, a majority (53 per cent) of the respondents expected the rupee to prevail below 62 against the dollar by the end of the current financial year.
Exports grew in double digits for the third straight month in September.
Most of the respondents (37 per cent) expected their credit demand will remain unchanged during the second half of FY14. Similarly, 50 of the business leaders did not see any perceptible change in their investment level during the second half of this year.
In the survey, 50 per cent of the respondents expected their sales and exports to grow moderately during the second half of this financial year. A majority of the respondents thought profit margin would decline because of pressure from hardening of input prices.