The Hindu Business Line : Business confidence in Q4 down, says FICCI survey

New Delhi May 7 The RBI's continued efforts to mop-up liquidity from the system may have dampened the feel-good factor corporate India has displayed over the last two years.

According to a FICCI survey for the fourth quarter of 2006-07, conducted in April when RBI raised key rates and the rupee appreciated against the dollar, business confidence has taken a beating compared with that in the third quarter of 2006-07.

However, at the enterprise level, a larger percentage of firms expect to invest more and generate more employment in the next six months, while fewer firms anticipate higher profits and sales.

Seventy two per cent of the participating firms are reported to have operated at over 75 per cent of their installed capacities in the last quarter of the previous fiscal. Capacity utilisation in sectors such as basic metals and alloys, cement, chemicals and machinery, among others, remain high.

Expectations

Sixty eight per cent respondents expect higher to much higher sales as against 78 per cent in the third quarter of 2006-07. Fifty per cent expect higher to much higher profits as against 52 per cent in the third quarter. Fifty two per cent expect higher to much higher exports as against 46 per cent in the third quarter. Thirty seven per cent expect higher to much higher employment against 32 per cent in the third quarter.

Another important divergence that the survey highlighted relates to the development of a `dualistic interest rate structure' in the economy. While a high 42 per cent of the companies are complaining of rising cost of credit as an impediment for their businesses, it must be noted that a significantly large proportion (80 per cent) of these companies belong to the small and medium sector.

Tapping resources

Large Indian corporates have beaten the high cost of credit by tapping resources from outside at cheaper rates. Large companies also enjoy obtaining funds from domestic sources at rates lower than prime lending rates, a benefit that SMEs cannot avail themselves of.

The survey drew responses from 418 companies from cement, pharmaceuticals, textiles, food and beverages, financial services, paper, metal, chemicals, FMCG, IT, infrastructure, auto, real estate, steel and petrochemicals sectors among others.

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