India Inc’s confidence level was at a two-year low in the first quarter of this financial year due to the Reserve Bank’s tight monetary moves and growing apprehension about major economies slipping into recession, shows a survey by the Federation of Indian Chambers of Commerce and Industry (Ficci).
The measure o f business was 51.6 points during April-June from 63.7 points in the fourth quarter of 2010-11, showed the survey. The confidence index was lower than this in the third quarter of 2008-09 at 44 points, the period immediately after the collapse of US financial services icon Lehman Brothers that had sent shock waves around the world and deepened the global financial crisis. It had then become as high as 71.9 points in the first quarter of 2010-11.
Respondents to the survey, comprising 295 companies with a turnover ranging from Rs 1 crore to Rs 2.5 lakh crore in textiles, steel, chemicals and fertiliser, oil and gas, automobiles and auto components, fast moving consumer goods, metals and business services, among others, attributed the decline to both global and domestic factors.
At the global level, the conditions in the US and the euro area have led to apprehension on the world economy entering into another recession. On the domestic front, rising interest costs and weak demand in India have taken a toll on confidence levels in companies, Ficci said. RBI's continuous raising of rates is responsible for both factors, the chamber said.
The findings showed that interest rates charged by banks on the surveyed firms for both working capital loans and term loans had increased significantly over the past six months. While the average interest cost for working capital loans had gone up from 11.6 per cent to 13.1 per cent, the average interest cost for term loans had gone up from 11.2 per cent to 12.6 per cent.
On what impact another round of interest rate rises would have on their proposed investment plans in the near term, 44 per cent of respondents said it would have a ‘serious’ impact and another 36 per cent said the impact would be ‘moderate’.
Asked for recommendations to improve conditions in India, respondents called for addressing issues related to land acquisition expeditiously, bringing down the cost of credit, particularly for small and medium enterprises and ensuring introduction of a Goods and Services Tax and the new Direct Taxes Code from April 2012.
They walso wanted further foreign direct investment reforms in areas such as insurance and multi-brand retail, increase in spending on infrastructure, as this would have a multiplier effect across sectors, and improvement of governance to ensure quick policy implementation and fast-track project clearances.
