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| High interest rate a key concern, risk of inflation continues | | CII Northern Region Business Outlook Survey | | EARLY TIMES REPORT
Jammu, Jan 17: According to the CII Northern Region Business Outlook Survey, overall outlook for the quarter (Oct – Dec 2012) continues to be moderate.
The Survey is based on 66 responses received from industry across the Northern Region States - the UT of Chandigarh and the States of Delhi, Haryana, Himachal Pradesh, Jammu & Kashmir, Punjab, Rajasthan, Uttar Pradesh and Uttarakhand. The survey responses were received between the period 15 November 2011 to 17 December 2011. 75% of the respondents were from the manufacturing sector and 25% from the service sector. 44% of the respondents were small organizations, 26% from medium and 30% from large organizations.
Only 15% of the respondents expect the GDP growth to be more than 8% reflecting further moderation in growth expectation in current quarter. In the previous survey (July-Sept 2011-12) 40% of the respondents expected growth of 8% or more.
On inflation front, 98% of the respondents expect inflation to be above 7% as compared to 87% in the previous survey. Moreover, 54% of the respondents expect inflation to surpass 9% mark. This shows that expectations of high inflation continue to persist in the economy.
The survey also looked into the expectations on various elements that build up business confidence viz - Capacity Utilization, Sales, New Orders, Production, Inventories and Availability of Credit, which are positive but have registered moderation from previous survey. Only 18% of the respondents expect an increase in capacity expansion in the current three months as against 31% in the previous survey. This indicates a likely moderation in investment activity.
89% of the respondents believe that infrastructure bottlenecks and/or lack of policy reforms are holding back domestic investment. Respondents were of the view that cost of capital, transport infrastructure; labour reforms and availability & cost of power were major factors responsible for lag in domestic investments.
52% of the respondents expect Overall Sales to increase as against only 34% reporting an increase in the previous quarter. This optimism is also reflected in expectations of higher New Orders, Production and Pre Tax Profits. Overall expectation of rising raw material costs continues in this quarter as well. 74% of the respondents expect an increase in raw material cost as against 70% reporting an increase in the previous quarter.
64% of the respondents expect the cost of credit to increase during the current three months as compared to 77% in the last three months, indicating a growing expectation of interest rates not rising further.
Outlook on exports is moderately optimistic. 37% of the respondents expect an increase in volume of exports as against 31% in the previous quarter. Only 11% expect decline in new orders in current quarter compared to 14% in the previous quarter. In case of volume of imports, 65% of the respondents expect status quo similar to 66% in the previous quarter.
69% of the respondents believe that the depreciation of rupee will result in increased input cost while only 31% believe it will result in increased competitiveness. During this financial year so far, INR has depreciated by 18.0% with respect to USD.
The survey also asked the respondents about their key concerns. The average score of responses revealed that High interest rate has moved to the top spot as against being in the second place in the previous survey. High raw material cost has moved to second spot from top slot in the previous survey. Global economic/political instability is the third most important concern. Slackening consumer demand and currency risks are the fourth and fifth most important concern respectively for the Indian corporate.
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