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Mumbai, July 25

THE Reserve Bank of India on Monday said that the business confidence index for the current quarter, based on its latest industrial outlook survey, showed a marginal decline of 1.1 percentage point, over the previous quarter.

The index for July-September 2005 stood at 119.06, according to RBI's quarterly macroeconomic review released here. Responses to the survey, however, suggested an improvement in the overall business situation, production, order books, employment, exports, imports, selling prices and profit margins during the quarter July-September, 2005 vis-a-vis April-June, 2005. On the other hand, capacity utilisation is expected to be lower in July- September 2005, the review said.

While the overall financial situation is seen as remaining unchanged during July-September 2005, working capital requirement is expected to increase, though availability of finance is expected to be broadly unchanged.

While manufacturing companies are expecting a rise in the cost of raw materials, bulk of the respondents almost 85 per cent felt that the inventory of raw materials as well as finished goods and selling prices (74 per cent) will not change during July-September 2005.

About two-thirds of the companies surveyed are planning investment in fixed capital during 2005-06, somewhat higher than during 2004-05 (61.6 per cent). Industry-wise, fertilisers, pharmaceuticals and medicines, transport equipment and electrical machinery evinced higher interest in investment.

Companies identified existing demand, availability of internal finance and net return on investment as factors that encourage higher investment while availability of manpower was reported as a discouraging factor.

Lead indicators of services sector performance for Q1 2005-06 suggest continuing buoyancy. Transport sector performance was led by increase in revenue earning freight of the railways. Substantial growth continued to be witnessed in cargo handled at major ports. Services sector growth has also been propelled by the information technology (IT) sector and IT-enabled services (ITES)/business process outsourcing (BPO).

The review report, however, said that the generally positive developments in agriculture, industry and services coupled with upbeat business confidence and expectations in the first quarter have imparted a degree of optimism regarding growth prospects for 2005-06.

The overall growth during 2005-06 is forecast to be in the range of 6.0 to 7.2 per cent.

(This article was published in the Business Line print edition dated July 26, 2005)
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