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India Inc not keen to invest amid slack demand: survey

20 June 2016

Indian business remains wary of making fresh investments, with subdued demand continuing to hang over corporations, even as concerns grow over muted recovery in the industrial sector, says a poll by the Federation of Indian Chambers of Commerce and Industry (Ficci).

The global economic situation, according to the poll, remains fragile and any firm recovery remains elusive as 64 per cent of the participants signalled that the demand situation would remain worrisome.

The Ficci Business Confidence Survey drew responses from some 120 companies with a turnover ranging from Rs3 crore to Rs65,000 crore, spanning across sectors. It gauged expectations between April and September 2016.

About 35 per cent respondents said they expect higher investments over April-September as against 41 per cent in the previous round. The companies stayed cautious about making fresh commitments and about 46 per cent saw no change in investment levels.

"Given the slew of measures undertaken in about past two years to kick start investments, the respondents were asked to indicate if they have witnessed any improvement in investment activity in and around their area of operation and a majority of them said they are yet to see investment fructifying," Ficci stated on the poll findings.

Those who indicated that things are improving reported activity mostly in infrastructure projects, including roads and highways, railways, renewable energy and defence.

However, the Overall Business Confidence Index was seven notches higher at 64.3 in the present round compared to 56.7 in the previous one.

The proportion of respondents citing a "moderately to substantially better" performance vis-a-vis last six months noted an increase at all the three levels - economy, industry and firm.

Also, in the current round, participants seemed more positive about the near-term prospects.

However, while the outlook with regard to parameters like sales, exports and employment did mark an improvement, the respondents still didn't seem sanguine about investment prospects and improvement in profit levels.

Moreover, the muted recovery in the industrial sector remains a worry. The manufacturing growth numbers have not been very encouraging and the same is reflected in the financials of the companies as well.

Besides, nearly 58 per cent of the participating companies foresee higher sales over the coming six months, as against 48 per cent earlier.

"The anticipated pick-up in sales despite investment intention remaining subdued indicates companies looking at rolling out unutilised capacity," Ficci noted.

Around 54 per cent in the current survey reported a capacity utilisation of over 75 per cent whereas in the last round, the corresponding figure was 30 per cent. Describing weak demand as one of the "key constraining factors for businesses", the poll found out that the global economy is still not in a recovery mode and growth remains scattered.

Furthermore, two consecutive years of drought have impacted domestic demand adversely, especially in the rural segment.

A good 32 per cent reported that they will consider hiring more people in the coming six months, up from the earlier 23 per cent. However, still a majority of 61 per cent did not foresee any fresh hiring over the near term.

However, a marginal improvement was noted in proportion of respondents expecting higher exports in the near term.

The respondents seemed divided when asked to indicate if they are considering review of investment plans, post Budget 2016-17. While about 44 per cent are looking at raising it, about 21 per cent are for consolidating existing investments and 35 per cent ruled out any review.

On the credit front, the situation seems to have improved, with the proportion of respondents citing availability and cost of credit as constraints declining.

"The Reserve Bank of India has cut the repo rate by 150 bps since January 2015. The transmission through banks is expected to improve with the recent reduction in small savings interest rate as well as introduction of the marginal cost of funds-based lending rate," Ficci noted.

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