Mumbai: Robust domestic demand should boost India’s economic growth but inflation and its impact on profitability of companies is a concern, a survey of chief executives by a top industry body showed.
Most CEOs expect higher capacity utilisation and expansion in the second quarter of the fiscal year that started on 1 April, versus the first quarter, though a majority also said input costs would rise without any change in pricing power.
India’s industrial output rose at its slowest pace in seven months in May, with some analysts saying the slowdown reflected capacity constraints rather than cooling of demand.
“Businesses are upbeat on the domestic economy despite the global uncertainties and are maintaining their investment momentum,” said Hari Bhartia, president of the Confederation of Indian Industry (CII).
In a poll of about 90 CEOs, 56.4% expected 2010-11 GDP growth of 8.5-9%, in line with official projections, while 38.5% saw an 8-8.5% expansion while 5.1% predicted a 9-9.5% rise.
However, all the chief executives polled expect headline inflation to be higher than the central bank’s forecast of 5.5% at the end next March.
The Reserve Bank of India (RBI) will revisit the forecast when it reviews policy on Tuesday.
Of the respondents, 64.1% expect the wholesale price index-based (WPI) inflation to stay above 6.5% in March 2011, while 28.2% see it moderating to 6-6.5 % and 7.7% forecast a lower range of 5.5-6%.
India’s annual WPI inflation remained above 10% for the fifth straight month in June, and the figure for April was revised sharply higher.
The RBI is widely expected to raise key rates by 25 basis points on Tuesday and 92.3% of CEOs polled said banks would increase lending rates if the RBI hikes again, putting pressure on company margins.