Indian economy outlook report FY12: D&B

The strength of the economic recovery during FY11, unanticipated by many, has been a revelation of not only the strong fundamentals of the economy but also the opportunities that it holds for the future. Though timely and aggressive policy responses by the RBI and the Government have aided the growth process, currently certain upside risks have come to the fore such as surge in the domestic international prices, high current account deficit, uncertainty over the pace of recovery in certain advanced countries, volatility in the short term foreign funds inflows coupled with moderation in the FDI’s. At this juncture of rapidly evolving macroeconomic risks, it becomes imperative for businesses to track the macroeconomic performance on an ongoing basis.

D&B’s report Economy Outlook 2011-12 is intended to facilitate more informed decisions by the businesses and also enable investors to assess the degree of business confidence and potential for India’s economic growth. The report provides forecast of key macroeconomic variables, which will determine the course of the business environment over the next fiscal.The report also includes a sectoral outlook for 2011-12, which is a survey-based analysis covering expectations of a sample of companies panning across manufacturing and services sector and gauging their optimism regarding certain key performance indicators. It also highlights the major issues and concerns that companies have regarding their future business prospects. Further, it enunciates the factors that will drive growth in FY12 as also the key strategies that companies are likely to adopt. The survey results depict a robust outlook on demand conditions in FY12.

As much as 88% of the manufacturing companies surveyed expect sales volumes to increase, over FY11. Overall optimism regarding profit expectations is healthy, with 75% of the manufacturing companies expecting increase in net profits in FY12. Within the manufacturing sectors, capital goods and auto component companies are the most optimistic, while textile companies are the least optimistic. Majority of the companies, both in manufacturing and services sectors expect to witness an increase in their employee count in FY12. Among the manufacturing sectors, companies in the capital goods and automobile industries are the most optimistic on employment front, while among services sectors, insurance companies are the most optimistic.

“Against the backdrop of heightened uncertainty on the global economic front, spiraling global crude oil prices providing upward pressure to the persistent inflation and high interest rates, we expect the economy to grow by 8.8% during FY12, gaining traction especially, during the second half of the fiscal year. Improvement in private domestic demand conditions, moderating inflation towards the end of the fiscal year and anticipation of recovery gathering pace in the global economy during the second half of the fiscal year is expected to provide the required impetus to overall growth. Moreover, robust industrial activity is also expected to drive economic growth and the IIP is likely to grow by 9.0% during FY12. However, the investment activity is expected to improve only marginally to 37.5% during FY12, weighed down by the high inflation and elevated interest rates. Given that a relentless rise in inflation does have the potential to impact growth considerably, the challenge before the RBI would be to manage the policy rates in such a way that it does not disrupt the growth prospects,” said Dr. Arun Singh, Senior Economist, Dun & Bradstreet India.

“The results of the sector survey conducted by D&B also reiterate the optimism prevailing in the business community. Nearly 90% of the survey respondents from the manufacturing sector expect an increase in their sales volume, thereby reflecting their expectation of robust demand conditions in FY12. However, rising input prices have emerged as a key concern area with nearly three-fourths of the companies in the manufacturing sector anticipating input prices to rise in FY12.”