Corporates fear a fall in profits in the first half of the current fiscal, even though production growth continues to be healthy in a wide section of industry.
Members of Confederation of Indian Industry (CII) who met in Hyderabad last Thursday to attend its national council meeting predict a drop in demand for their products until the government wakes up and takes corrective measures.
They discussed in detail the Ascon report forwarded by 56 affiliate associations under the CII fold. The associations represent more than 65 per cent of the organised industry in the country.
There is a huge stockpile of inventory across all the sectors with the sole exception of the software industry. The impact of this will be felt in the first half. The reasonably healthy production growth will, hence, be offset due to the conditions prevailing, said a senior CII official.
Chamber members outlined various reasons for the dismal scenario.
Inadequate infrastructure and lack of liquidity in the market are two of them.
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They point out that the growth in infrastructure is always higher than industrial growth, but the reverse trend is true of India. Industry feels the situation is still not comfortable despite the recent cuts in the CRR,
The cost of borrowing, which is between 18-24 per cent, is eroding the viability of projects being set up by the Indian industry and giving an unfair advantage to the foreign companies which can avail of finance at much lower interest rates. High cost of finance has also severely hit the sales of a large number of consumer durables.
Several companies cited non-payment of dues by state electricity boards as one of the reasons for the slowdown. Companies have not received payment to the tune of several hundred crores for sale of equipment made to various SEBs, resulting in grave financial loss to them, said an official.
The sugar industry, which according to CII is growing at a healthy pace, is seriously constrained by inadequate port facilities. CII members say the order position for the next year is significantly lower than was expected.
high inventory pile up in the automobile industry does not augur well for the auto components industry. Unless the government does not reduce its expenditure and bring down the fiscal deficit, there is no way in which the current high rates of interest can be brought down and the capital markets be revived, said the official.
In addition to these factors, ambiguities in the duty structure in some industries was spelt out as factors which could lead to the virtual crippling of these sectors.
The CII has criticised the withdrawal of the notification which placed a 25 per cent import duty on components for machine tools. This has been replaced by a 50 per cent duty as against the duty of 25 per cent on the finished product.
CII members said this situation would lead to a 46 per cent increase in the cost for the domestic manufacturers, from Rs 5.70 lakh per tonne to Rs 8.13 lakh per tonne, thus, severely hampering the growth of the machine tools industry.
The reduction of import duty on textile machinery and a low 20 per cent import duty on aluminium were the other duty anomalies which need to be rectified before the next budget, said members.