labels: confederation of indian industry, industry - general, economy - general
CII expects moderate slowdown in growth news
26 June 2006

New Delhi: In its latest quarterly report on the State of Indian Economy (SOE), the Confederation Of Indian Industry (CII) forecasts India's economic growth faces a moderate downturn owing to rising interest rates, rising prices of oil imports and inflation.

Though the report acknowledges that the low weightage of fuel prices and interest rates may lead only to a marginal effect on overall costs. However, these two factors may affect the performance of the corporate sector from the demand side, the report said.

Comparing the performance of 3018 companies during Q3 of 2005-06 with that of Q3 of 2004-05 CII noted a decline in the growth of net sales by about 9 per cent on account of an increase in expenses.

The growth rate for the current fiscal was projected at 8 per cent before the rate of inflation began increasing. The growth rate in the previous fiscal was 8.4 per cent, thanks to the revival of agricultural growth after years. Agricultural growth in the last fiscal was 3.9 per cent.

Despite these drags on the economy, the report indicates that 8 per cent growth would still be achievable if the monsoons turn out to be normal and agriculture repeats its last year's performance. Moreover, India would also benefit from the faster growth of the major global economies are growing.

CII's prediction of a slowdown comes on the back of a decline in the growth of the industry and services sector in the January-March 2005 period, which registered 8.2 per cent and 10.9 per cent respectively. CII also notes that the manufacturing sector improved its to 8.9 per cent in Q4 of 2005-06 from 8.1 per cent in 2004-05, while power output improved by 6.1 per cent.

However, despite these, the 'index of industrial production' fell to 8.2 per cent during Q4, 2005-06 from 8.4 per cent in 2004-05. Mining growth dropped to 3 per cent during Q4, 2005-06 from 3.7 per cent a year back.

The report expresses concern over the drop in the already low growth rate of intermediate sector and apprehends that this could lead to an upward pressure on material inputs of the corporate sector, affecting its profitability.

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CII expects moderate slowdown in growth