Industrialists apprehensive of the current global meltdown, a Ficci survey reveals.
Ignoring Prime Minister Manmohan Singh’s displeasure at India Inc sending negative signals, industry chamber Ficci on Sunday presented a gloomy outlook for corporates.
A survey, conducted by the Federation of Indian Chambers of Commerce and Industry (Ficci), shows an increasing apprehension among corporates that the current global meltdown might snowball into a full-blown crisis — and last at least till end-2012.
“As many as 83 per cent of the respondents to the survey share this view. This points to a long and arduous road ahead for Indian trade and industry,” the chamber said.
Moreover, a few of the respondents to the survey on the Global Meltdown and its Impact on Indian Industry even said the current crisis is far deep-rooted and may last well into the next couple of years, possibly till 2014.
The findings of the survey came just a few days after the prime minister asked India Inc to be cautious on sending pessimistic signals. “I must confess that it is a little disappointing to sometimes hear negative comments emanating from our business leadership or be told that government’s policies are causing slowdown and pessimism In the industrial sector,” he had said on Thursday.
A day after, Finance Minister Pranab Mukherjee asked the industry to work with the government, instead of “merely repeating” its grievances.
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As many as half of respondents to the survey said uncertain economic outlook has forced them to hold on to higher cash balances. Interestingly, nearly 82 per cent of this group of respondents were large corporates.
An increase in cash balances typically implies that corporates are holding on to their investment plans for better future opportunities. Alternatively, when credit is scarce, or expected to be scarce, firms hold on to more cash to meet any potential eventualities, said the chamber.
The chamber said this trend was akin to 2002-03, when the economic outlook was uncertain post-dotcom bust in 2000 and the September 11, 2001 attack on twin towers.
The findings of the survey also came in the backdrop of India’s economic growth plunging to a nine-quarter low of 6.9 per cent in the second quarter of this fiscal. Signals for the third quarter are also not promising as industrial production contracted 5.1 per cent in October and the euro zone crisis dragged exports growth to 22-month low of over 4 per cent in November.
Within the sample, sectors like metals, cement, food & beverages, reported the maximum increase in cash balances. It is also possible that monetary tightening cycle that started in March 2010 has resulted in sectors like construction beginning to feel the pinch, said the chamber.
Apart from conserving cash, a quarter of the respondents in the survey has shifted or contemplating a shift to domestic sources of funds because of increasing risk. “Thus, even the 17.5 per cent growth in non-food credit currently may be an exaggeration,” the chamber said.
In fact, a look at the percentile distribution the funds companies are allocating towards working capital will show an increase — even to the extent of 50 per cent for 20 per cent of the companies in the sample. “On an average, the increase in funds for working capital needs has been 25 per cent. If we strip this 25 per cent off from non-food credit growth for the current fiscal”, the chamber said.
The respondents suggested that to improve the situation and to increase the government should increase spending, and create better infrastructural facilities at ports, especially in Chennai and Tuticorin in Tamil Nadu besides Kochi in Kerala. But, analysts said, given ballooning fiscal deficit that has already surged to 6.5 per cent of GDP, such a rise in outlay by the government does not seem to be forthcoming — at least in 2011-12.
The respondents, which included member associations of Ficci and individual companies, also wanted monetary tightening to end. The survey was conducted during September-October and RBI already paused its tight monetary moves in December.
The survey drew responses from 105 representatives of a wide array of sectors ranging from heavy engineering to textiles. Some other responses that were received were from tea manufacturing, cotton and synthetic yarn manufacturing, cement and automobile tyres, manufacturing cables, vaccines, chemicals, pumps and valves.