Business climate worsens in May
New Delhi: Business climate for investors in the country worsened in May due to slowing economic growth and weak sentiment in manufacturing as well as foreign trade, says a report.
According to the BluFin Business Cycle Indicator (BCI), a monthly composite indicator of primary and secondary macro variables which tracks the state of the business cycle in the Indian economy, fell to 157.6 last month compared to 158 in April.
On-year-on year basis, BCI's growth rates fell to 1.33 percent in May from 1.65 percent in April 2011.
The index is based on economic indicators which fall under categories such as capital markets, foreign trade, economic policy and real economy.
"The primary drivers of the slowdown continue to be related to weakness in manufacturing, sentiment, foreign trade and the state of the global macro economy," BluFin Director of Research and Development Sam Thomas said.
"Our results suggest that there is urgency for appropriate policy response from monetary and fiscal authorities in order to reduce the impending stress. Otherwise, we would have to depend on time and limited market forces to heal this business cycle," he added.
BluFin Vice President (Research) Debopam Chaudhuri said, "Among the macro variables studied, particular weakness was noticed in real economy components like production of some key basic metals, aviation, tourism, import volumes and foreign exchange reserves."
The timeliness of the monsoon this year is of crucial importance and would play an important role in reviving the economy, he added.
The country's policy incoherence and the absence of significant reforms have negatively impacted the business climate for foreign as well as domestics investors, expert believes.
The latest official figure showed that in 2011-12, the country's GDP growth had dropped to 9-year low of 6.5 percent. The growth in the January-March quarter was only 5.3 percent, lower than the economist projections.
Additionally, IIP (Index of Industrial Production) data showed meager output growth of 0.1 percent in April. India?s inflation rate is over 7 percent, and the fiscal deficit has been allowed to swell to 5.9 percent of GDP due to a raft of subsidies.
Foreign Institutional Investors (FIIs), who had invested a huge capital in the country's equity market in the first three months of 2012, have turned bearish in the current fiscal.
During January-March, FIIs had invested a record Rs 43,951 crore, but in the next two months they withdrew a total of Rs 1,456 crore.