Slowdown pulls down business confidence index

Of the total 587 respondents, 72 per cent expressed their plans to invest in the current financial year, but a third intended to remain in their industry group when making new investment. A majority expected their investment to add to the existing capacity. In the IT sector 45 per cent of respondents wanted to invest to further modernise their firms, the survey revealed.

In the current survey, the biggest fall had been in the proportion of firms who expect overall economic conditions to be better in the next six months. Information technology IT had the highest BCI but the index8217;s decline cut across various sectors, including vibrant services.

Actual performance of economic fundamentals like higher inflation rate, fall in investment and lower industrial growth had depressed business expectations.

The current trends in exports and imports were likely to continue but on output and sales, expectations of growth had been lowered. Expectations of reduced profits were greater for intermediate and capital goods and increased sharply for consumer non-durables.

The survey showed that there was decline in firms which had a current inventory level of one to three months in all sectors except capital goods. Pending sale orders for all sectors were predominantly less than one month of production, it said.

The survey also finds that most firms expect no change in wages and the level of labour employed, in fact expecting a decrease for unskilled workers. Firms also expected raw material, electricity and other fuels and labour costs to increase but feel a greater ease on the credit front.

All this was attributed to an increase in energy prices and lower growth in volumes. Interestingly, improvement in the degree of optimism was discernible in firms with a turnover of more than Rs 500 crore, the survey added.

Poor investment, moderate harvest to slow down GDP: Poor investment and a moderate harvest will slow down the GDP growth rate to 6.1 per cent, down from 7 per cent as expected earlier, while the agricultural growth will be restricted to 2.9 per cent .

This has been said in a study by the National Council of Applied Economic Research NCAER. The study projects an inflation rate of 7.1 per cent and industrial growth of 5.2 per cent.

Deficient rains in northern and western regions, particularly in the August-September, may result in foodgrain output being lower than the last year8217;s harvest of 203 million metric tonnes mmt.

The study said, average industrial growth during April-September 2000 was only 5.5 per cent due to higher interest rates, fuel prices and volatile capital markets though the quot;new economyquot; segment continued to record gains in output and sales.

Manufacturing which accounts for 80 per cent of the Index of Industrial Production-General IIP-G grew by only 5.6 per cent. Though the consumer durables segment grew at a rate of 21.6 per cent owing to a surge in demand of telephone instruments, their weight in IIP-G was only 5.1 per cent.

It said due to slowdown in agriculture, growth of segments which had a significant rural demand component had declined. These included refrigerators, TV receivers, bicycles and wrist watches.

The NCAER study said a whopping 86 per cent rise in the country8217;s oil import bill had led to a trade gap of 4.7 billion despite a 22 per cent growth in exports in the first half of the current fiscal.

Exports of all major commodity groupings had shown a rise including readymade garments, leather, engineering goods and cotton yarn fabrics and there had been no change in the merchandise export basket. The export growth had been mainly due to pick up in global demand. But slowing down of industrial production despite export growth showed that the composition of exports was not broad-based as most of them were consumer goods, it said.

While non-oil imports fell by 1.85 per cent to 17.68 bn, oil imports rose from 4.45 bn to 8.3 bn. Almost 40 per cent of imports were of oil products, gold and silver and 20 per cent were of export-related items.

The study argues that the response to rise in Chinese imports should not be higher tariffs saying that they had increased by 28.3 per cent in the April-July period this year but their share in India8217;s total import bill was only 2.7 per cent. In this period, India8217;s exports to China had risen by 61.3 per cent.