Indian economy faring better, credit an issue, says 'optimistic' India Inc

New Delhi: Stating that the current economic conditions of the country are 'moderately to substantially better' compared to the last six months, India Inc expressed confidence about its business prospects even as it believes that cost and availability of credit remain a concern.

The Overall Business Confidence Index (OBCI) rose to a six quarter high in the Business Confidence Survey conducted by Ficci, indicating that demand is gaining traction. The index value stood at 67.3 in the current round as against 62.8 in the previous poll.

About 63 percent of the respondents in the survey reported current economic conditions as 'moderately to substantially better' compared to last six months, showing improvement at all the three levels - economy, industry and firm level.

Good monsoons and award of the seventh pay commission will provide a further fillip to demand.

Results pertaining to operational parameters indicated mixed signs. In the present round, participating companies seemed upbeat about near term sales prospects and profits when compared to the previous survey results. However, outlook on other parameters such as investments, employment and exports was by and large unchanged.

With regard to hiring prospects, 31 percent of respondents in the latest round reported that they would consider hiring more people in the coming six months, the corresponding number in the last round was 29 percent. Nonetheless, still a majority 56 percent of the participants did not foresee any fresh hiring over the near term.

Nearly 75 percent said they foresee a better performance at the economy level in near term, while 63 percent anticipate improvement at the industry level and 70 percent were hopeful of a better showing at the firm level.

"India is on the recovery course and there are indications of an improved economic activity. The government's focus on reforms has been laudable and it is hoped that the momentum on implementation will continue.

"The recent consensus on the passage of GST Bill is commendable and industry is looking forward to it being rolled out in April next year. This will be a game changer for Indian industry and economy," the survey pointed out.

In the present round, 54 percent participants reported cost of credit to be a bothering factor. The corresponding number in the previous round was 46 percent. Moreover, 29 percent said availability of credit was an issue, vis-a-vis 24 percent in the previous round.

High interest cost has been one of the major areas of worry for the industry. It remains critical that the cost of capital is made competitive to propel investments. The Reserve Bank of India has cut the repo rate by 150 bps since January last year.

"The government had also announced a cut in the small saving rates earlier this year. It remains critical that Banks take cognizance of the situation and transmit these cuts by lowering the lending rates," the survey noted.

The poll results show that on an average, companies are paying an interest rate of about 12 percent on working capital and term loans. 

In the current round, 46 percent of the participants reported weak demand to be an impediment to their business performance compared to 59 percent in the previous survey.

The respondents also indicated that they foresee a pickup in domestic demand over October-March period as 62 percent said they expect the demand to increase by up to 10 percent over next six months, and about 16 percent anticipated an increase of more than 10 percent.

Further, a majority of respondents expect an improvement in the order book position over next two quarters with 59 percent firms anticipating a better order book position over the next six months as against 55 percent in the previous round.

Besides, about 62 percent participating companies said that they foresee higher sales over the coming six months compared to 55 percent in the previous survey.

"Higher disposable income in the hands of consumers, along with the onset of festive season, is expected to drive sales," the survey said.

Marking a marginal increase from previous survey, respondents were expecting an uptick on the investment front.

In light of the measures undertaken by the government to kick-start investments, the participants were also asked to indicate if they have witnessed any projects taking off in and around their area of operation.

About 46 percent of the participants in the survey said they have noted an improvement in investment activity in and around their area of operation. They also said the projects being implemented in sectors include roads & highways, civil aviation, power, construction, auto & auto ancillary.

Further, the latest assessments by IMF and World Bank point towards persistence of headwinds and global economic situation which is likely to remain challenging over the near term. This somberness was also reflected in the outlook of the participants with regard to exports.

In the current survey, 32 percent of the respondents expected exports to go up over the next two quarters. In the previous round the number was 34 percent. Moreover, 45 percent expect no change in the export volumes while 23 percent said that they foresee a decline.