NEW DELHI: FICCI Business Confidence Index dipped to 71.9 from its value of 74.8 in the previous survey with Indian Inc sounding a note of caution on its profitability, rising cost pressure and possibility of further increase in key rates by Reserve Bank of India (RBI) in its Monetary Policy on July 27.
A large proportion of firms participating in FICCI’s Business Confidence Survey said they have to hold the prices of their goods even as the input cost is rising as they are facing "stiff competition" from imported goods. "In these circumstances, another hike in policy rates by the central bank will hit industry hard when international pressure is getting tougher," they said.
FICCI’s Business Confidence Survey for the first quarter of fiscal 2010-11 drew responses from 311 companies with turnover ranging from Rs 1 crore to Rs 20,000 crore.
Respondents were from sectors such as textiles, steel, chemicals and fertilisers, oil and gas, auto and auto components, food processing, electrical equipment and machinery, rubber and rubber products, cement, FMCG, pharmaceuticals, paper, metal and metal products and financial services. The survey was conducted during the month of July 2010.
The respondents said the companies continue to face pressure on account of the borrowing costs. About 72 per cent of the respondents said the shift from the PLR regime to the Base Rate regime would not benefit them even though it would lower the borrowing costs.
As many as 24 per cent, majority of which were large corporates, felt that there was a good chance that their borrowing costs would rise with the base rate coming into effect from July 1, 2010. The FICCI survey notes that the macro situation was also getting vitiated on account of the stubbornly high inflation rates and the perpetual question over the state of global economy.
"These developments have dented the confidence level of corporate India with all the three confidence indices computed by FICCI seeing dip in their value," the chamber said.
The survey revealed that while high borrowing cost is presently being seen as an impediment to business performance by nearly 40 per cent of the surveyed firms, going ahead this figure is expected to rise.Nearly 87 per cent of the firms said as RBI has already increased the key policy rates earlier this month, another round of such hike would "certainly jack up further their cost of credit".
However, as many as 73 per cent of companies felt that an increase in interest rates would happen only in the next three months if RBI were to further tighten monetary policy as banks would not increase lending rates immediately.
Responses to various parameters for the next six months are; --Sales: 77 per cent expect ‘higher to much higher’ sales—Selling price: 23 per cent foresee an increase in prices—Profits: 39 per cent expect ‘higher to much higher’ profits—Exports: 44 per cent expect ‘higher to much higher’ exports—Investments: 46 per cent expect ‘higher to much higher’ investments—Employment : 35 per cent expect ‘higher to much higher’ employment.
