While the slowdown in global economy continues, stagnancy of reforms, slackening consumer demand and high interest rates contributed to a fall in the Confederation of Indian Industries (CII) Business confidence index.
According to the trade body, the CII-BCI for July-September 2012 fell by 3.7 points to 51.3, after rising to 55.0 in April-June 2012 from 52.9 in the previous quarter.
Stating that the declining index value was indication low business sentiments that has been prevailing for the last few quarters, Chandrajit Banerjee, Director General, CII said that the 80th Business Outlook Survey reveals that Stagnancy in reforms is the top concern of most firms, followed by slackening consumer demand and high interest rates.
“CII has been recommending implementation of reforms in the areas of indirect taxation, land acquisition, fast clearances of pending infrastructure projects and fiscal consolidation in order to improve business confidence and revive the growth outlook for the economy”, he said.
Pointing out that with slackening demand being a key concern, the Reserve Bank of India (RBI) should not have any reservations about reducing interest rates.
Further adding to the gloomy outlook, Federation of Indian Chamber of Commerce and Industry (FICCI’s) survey on Inverted Duty Structure in Indian Manufacturing sector points out that raw materials users in various manufacturing segments were in trouble due to inverted customs duty structure that makes them uncompetitive against cheaper finished product imports and discourages domestic value addition.
Manufacturing segments which are suffering due to this include pumps for liquids, tyres, electronic hardware, electrical equipment, medical instruments, aluminum & articles and technical textiles.
Higher import duty on raw materials results in an inverted duty structure that makes certain Indian manufactured goods (those dependent on imported raw materials) uncompetitive in both domestic and export markets.
CII on the other hand points to rising input costs as a major worry for firms and they have recorded an increase in raw material costs, electricity & fuel cost and cost of wages & salaries during April-June 2012 compared to the previous quarter. CII also said that in a worrying trend, an overwhelming majority of respondents (86.3%) saw their availability of credit decline or remain unchanged in the period April-June 2012 mainly due to high interest rates prevailing in the economy.
They add that on a positive note, the survey showed that 56.1 per cent of the respondents expect domestic investments of their companies to rise in the second-quarter of 2012-13.