India Inc’s business confidence fell for the second straight quarter in Q4, strengthening appeals for a cut in lending rate by the Reserve Bank in its forthcoming monetary policy review, according to a FICCI survey, which adds that the worst is not over yet.
Indicating persisting signs of deceleration, the business confidence index dropped to 57.4 in the January-March quarter of 2013, as against 61.2 in the previous quarter.
“The recent easing of Wholesale Price Index (WPI) numbers will give some more space to the central bank to consider further rate cut in the policy rates,” according to the survey conducted by industry body FICCI.
Moreover, in lieu of high current account deficit (CAD) coupled with prevailing weak demand in the market and inadequate infrastructure investments, India Inc felt that the worst is not over yet, it said. The CAD touched a historic high of 6.7 per cent of the GDP in the quarter ended December 2012.
Consequently, threat of imports seems to be emerging as a concern. In the current survey round, 28 per cent of the participants said it was a bothering factor, up from 15 per cent in the third quarter of FY13.
Besides, 74 per cent of the industry respondents said if banks do not cut lending rates immediately, it would have a serious to moderate impact on their future investment plans.
The respondents also indicated weak demand to be a worrying factor hampering the overall business performance.
Further, there was a marginal increase in the proportion of respondents citing cost of credit to be a concern. The companies were also not upbeat about the sales prospects and profit margin performance over the next six months.
However, the industry believes that the measures taken by Cabinet Committee on Investments (CCI) to expedite the process of granting project clearances will unlock huge investments in core sectors of the economy, improving investment activity.
“The slight improvement in index of industrial production (IIP) and export numbers signal springing of green shoots and it will be crucial to keep nurturing them,” the survey said.
Observing that the monetary transmission by banks following the reduction in policy rates by RBI has been weak, the survey participants pointed out a marginal decline in interest rates for both working capital and terms loans over the last six months. The RBI has cut repo rate by 0.75 per cent so far this year.
The survey drew responses from about 200 companies with a turnover ranging from Rs 10 lakh to Rs 1 lakh crore.
About 49 per cent of participants indicated that they anticipate an improvement in the overall economic situation over the first two quarters of FY14, as compared to 52 per cent in the last survey round.
The Reserve Bank is scheduled to announce its first mid-quarter monetary policy review on June 17. There is pressure on the RBI to cut policy rates in view of declining inflation and the urgency to boost sagging growth.