High input costs, lack of reforms hit India Inc

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SME Times News Bureau | 13 Aug, 2012
Most in India Inc. expect stagnancy or decline in their business activities in July-September period due to high cost of borrowings, unfavourable macro-economic condition and the government's inability to push forward the reforms process, a survey revealed.

According to a business outlook survey conducted by the Confederation of Indian Industry (CII), majority of business houses witnessed stagnancy in their overall sales, new orders, value of production, inventory levels and employment in the first quarter of 2012-13 financial year.

For the second quarter of the current financial year, the business confidence has declined further, indicating that the situation is likely to worsen further.

CII Business Confidence Index for July-September 2012 fell by 3.7 points to 51.3, after rising to 55, in April-June 2012 from 52.9 in the previous quarter.

"The falling index value is reflective of low business sentiments that has been prevailing for the last few quarters," Chandrajit Banerjee, director general, CII, said in a report.

The survey revealed that stagnancy in reforms is the top concern of most firms, followed by slackening consumer demand and high interest rates.

Rising input costs continue to be a major worry for firms. Majority of the firms recorded an increase in raw material costs, electricity and fuel cost and cost of wages and salaries during April-June period as compared to the previous quarter.

Expectations for the quarter ending September 2012 show that a majority of firms still expect these costs to increase though the proportion of respondents expecting an increase is lower than in the first quarter.

Almost all firms reported either an increase or no change in the cost of credit and a majority continue to expect no change in the second quarter.

Reflecting the grim domestic policy scenario, investment sentiments have weakened considerably.

However, on a positive note, the survey showed that 56.1 percent of the respondents expect domestic investments of their companies to rise in the second-quarter of 2012-13 compared to the first quarter, while 39.5 percent expect it to show a decline or no change.

Over 42 percent expect international investments to show a decline or no change in July-September quarter, while 34.7 percent of respondents expect it to record any increase.

Majority 88.9 percent of the respondents said that infrastructural bottlenecks and lack of policy reforms were responsible for holding back domestic investments.

The survey also showed that in the first quarter of 2012-13, 42.8 percent firms had capacity utilisation between 75-100 percent.

In a sign of improving capacity utilisation, a higher percentage of 57.2 percent expect it to remain above 75 percent in the second-quarter of the current fiscal.