Business expectation indicators drop

REPORT ON MACRO-ECONOMIC AND MONETARY DEVELOPMENT

Index for the quarter ended March 2008 declines by 4.7%.

The industrial outlook survey by the Reserve Bank of India has shown a decline in business expectation indicators for January-March 2008 over the earlier quarter. The business expectation index based on assessment for the quarter ended December 2007 also posted a decline.

The business expectation index for the quarter ended March 2008 declined by 4.7 per cent over the previous quarter and 6.2 per cent on a y-o-y basis. The reviewed index for October-December 2007 fell by 2.5 per cent over the earlier quarter.

The decline in expectations index for January-March 2008 emanated from lower net responses for major parameters of the survey such as the overall business situation, availability of finance, production, order books, capacity utilisation, employment, exports and profit margins over the previous quarter, said RBI, in its macroeconomic and monetary development review for the third quarter of 2007-08. 
 

IN LOW SPIRIT Business expectations surveys
Agency	Business expectations		Growth over (%)
	Period	Index	a year ago	previous round
NCAER	Oct  '07-Mar '08	Business Confidence Index	-4.3	5.8
FICCI	Oct '07-Mar '08	Business  Confidence Index	-15.1	-10.5
RBI	Jan-Mar '08	Business Expectation Index	-6.2	-4.7
Dun &  Bradstreet	Jan-Mar '08	Business Optimism Index	-13.2	-12.6

RBI noted that the business confidence indices compiled by various agencies indicate some softening of sentiment against the backdrop of elevated international crude oil prices and global uncertainties, despite strong domestic fundamentals.

The corporate performance showed some slowdown in the first half of 2007-08. Companies posted a 22.1 per cent growth in gross profit during the second quarter of 2007-08.

This was the lowest in the last six quarters, said RBI. The growth in net profit moderated sharply to 22.7 per cent from 49.4 per cent a year ago. The growth in sales also declined to 16 per cent during the September quarter from 29.2 a year earlier.

The recent widening of interest spreads in international markets on corporate bonds assigned even an investment grade would hold implications for Indian corporates, said RBI.

Indian companies have increased their reliance on external commercial borrowing (ECB) in the recent period. The net mobilisation of funds by corporates through the ECB route during April-December increased by almost half over a year earlier.

The economy continued to show a robust growth during July-September 2007-08, although with some moderation, said RBI. According to the Central Statistical Organisation (CSO), real gross domestic growth (GDP) moderated to 8.9 per cent during the second quarter of 2007-08 from 10.2 per cent a year earlier.

The growth in the index of industrial production (IIP) slowed to 9.2 per cent during April-November 2007 from 10.9 per cent a year earlier. During the same period, the infrastructure sector recorded a lower growth of 6 per cent than 8.9 per cent a year ago, reflecting a slowdown in all sectors, according to RBI.