Domestic demand is helping the Indian economy, but signs from Europe’s debt crisis and a faltering US recovery are worrying, industry chamber Assocham said on Thursday.
Though results for the second quarter suggest “healthy state of affairs for Indian corporates, fears of global financial contagion pulling down growth in developing countries are mounting,” it said.
An analysis of the second quarter results of 87 companies across different sectors showed that even the domestic consumption is coming under the impact of high interest rates and increasing raw material costs.
The Reserve Bank of India has followed a tight monetary policy since March 2010, raising interest rates by 375 basis points since then. Besides, fresh investments face delays in government clearances, the Assocham said.
“There are some long-term concerns,” which need to be addressed by the government, Assocham Secretary General Mr D S Rawat said.
He said the chamber found that while there were no visible signs yet, fall in business for the IT and ITeS to Europe and the United States,” prices have fallen or remain unchanged”.
Macro-economic concerns in Europe are weighing on the Indian corporates, the Assocham said.
It said the fast moving consumer goods (FMCG) firms are unable to pass on higher input costs to customers due to competitive market conditions while automobiles, real estate and other industries could hold on to profits with declining margins.
It said the power companies have declared subdued results. While generation costs have gone up, tariffs are difficult to revise.
Depreciating rupee value has posed another challenge for the Indian industry. The landing cost of the imported raw materials have gone up as a result of weakening rupee, it said. Rupee has weakened by about 12 per cent in the last two months.