India business confidence dips further

India business confidence dips further

New Delhi: The confidence of the Indian business leaders has declined for the second time in a row as economic instability and high interest rates take their toll, according to a survey by the Confederation of Indian Industry, or CII, the industry lobby.

The business confidence index, or BCI, a half-yearly measure of business sentiments among various sectors tracked by CII, has sha-rply declined by 4.7 points for six months starting October compared with the previous six months. The index is down by 10 points compared with a year ago.

The mood reinforces pessimism in similar surveys by others, including the National Council for Applied Economic Research (Ncaer), the Federation of Indian Chambers of Commerce and Industry (Ficci) and the Reserve Bank of India (RBI).

The survey carried out by CII during September and October notes that 72% of the respondents say that a recovery to “normal" growth rates is likely only in the second half of 2009 or later. It didn’t disclose the number of respondents.

The expectations index, which is a major component of BCI, reflecting the perception of Indian industries about their performance during the period, fell by 4.9 points over the previous survey and by 11.3 points compared with a year ago.

“The expectations index shows a huge decline in confidence of Indian industries," said Chandrajit Banerjee, director general, CII. “We need a comprehensive communication package by the government in partnership with the industry so that we can communicate effectively to the industry to shore up confidence."

CII has also called for a comprehensive package with a cash reserve ratio (the amount which banks have to park with RBI) and repo rate (at which the central bank injects money into the financial system or lends money to banks) cut by 150 basis points (bps) each and a reverse repo (at which it sucks out excess money or borrows money from banks) cut by 50bps.

It has also asked for a cut in statutory liquidity requirement for banks by 200bps to 22% and immediate reduction in interest rates.

The central bank on Saturday raised the interest rate on foreign currency deposits by 75bps to boost liquidity in the financial system. It also raised interest rate cap on non-resident rupee accounts by 75bps.

The central bank has already taken a slew of measures in recent weeks, including cutting the repo rate by 150bps to 7.5% and lowering banks’ reserve requirements to improve liquidity and boost economic growth.

“The regulator (RBI) has said that it would watch the economy and take necessary measures. However, time has now come for doing all of this together, otherwise economic growth will be tremendously challenged next year. The case has been strengthened by the fact that inflation rate has moderated substantially. Any of these measures not being taken will see confidence going down further," Banerjee said.

Headline inflation rate dropped to 8.98% for the week ended 1 November from 10.72% a week ago.

CII has also brought down its gross domestic product forecast during the current fiscal to 7.4-7.8%, down from the earlier projection of 8.3-8.6%.

“The feedback that we are having from the industry is that the times are tough, especially for the manufacturing sector. The outlook for the next six month is very bleak. The future investment plans are getting affected though one does not see the investment plans that are already announced getting affected," Banerjee said.

CII also, in a separate press statement, asked the government to set up a National Infrastructure Facilitation and Monitoring Agency, “with a mandate to facilitate and monitor implementation of infrastructure projects of national importance". It also asked the government to increase direct spending on infrastructure projects and to fast-track all such projects that are currently awaiting approval.