NEW DELHI, 6 December 2007 — Indian business confidence has slumped to a five-year low on the back of flagging exports, aggressive monetary tightening and a rising rupee that has slowed the economy, a survey said yesterday.
The report by the Federation of Indian Chambers of Commerce and Industry (FICCI) was the latest sign firms are hurting from interest rates at five-year highs, a rupee up 12.5 percent against the dollar this year and export woes. “India Inc.’s business confidence is at a five-year low and the outlook for exports, investments, employment and profits has taken a severe hit,” said the second-quarter survey of 321 companies in Asia’s third-largest economy.
“Companies are worried about a slowdown with oil prices high, the rupee’s rise, high rates and uncertainty about how the US subprime crisis will impact,” federation economist Anshuman Khanna, who prepared the report, told AFP.
The Overall Business Confidence Index showed a 10.5 percent decline to 61.2 points from 68.4 in the last survey. It was down 15 percent from the July to September period a year earlier. A lower reading on the zero to 100 scale means greater pessimism.
The findings followed data last week showing economic growth slowed to 8.9 percent in the second quarter to September, still second only to China, but analysts predicted a further weakening in months ahead.
Analysts have forecast between 8.3 percent and nine percent growth in this fiscal year to March 2008 after the economy expanded by 9.4 percent last year, its fastest in nearly two decades. But some analysts say growth could slow to seven percent next year. “Even growth of seven, 7.5 percent is very good when you look at growth in the West of two or 2.5 percent,” said Khanna.
“But we need to take growth to double digits to make it more inclusive,” he said, to embrace tens of millions of desperately poor Indians who have seen no impact from the nation’s economic boom.
The survey covered a wide range of sectors from cement, pharmaceuticals, textiles, heavy equipment, chemicals to India’s showcase information technology business.
“Previously only export-oriented units bore the brunt of an appreciating rupee but now even companies peripherally connected with exports are getting hit,” Khanna said.
The government said last week it would miss its annual export target due to the rupee’s appreciation. Thousands of employees in the textile sector have already been laid off due to falling orders.
The central bank must “ease the monetary policy... and efforts should be made to prevent any further appreciation of the rupee. Failure on any one of these counts would send the industry into a downward spiral,” Khanna said.