With the GDP growth rate stagnating at 7.7%, industry?s growth rates are unlikely to be better, according to the Federation of Indian Chambers of Commerce and Industry?s (Ficci?s) latest Business Confidence Index, which has reached a two-year low. According to Ficci, the GDP growth in the current fiscal may be in the lower band of 7.5%-8% with some significant downside risks. The GDP growth rate for Q1 of 2011-12 has been 7.7% which is the lowest since Q3 of 2009-10.
The growth in service sector is also expected to be lower than 10% given that there is a clear slowdown in public expenditure on community, social and personal services. Also, the industrial sector and global economic slowdown will adversely affect ITES and other service sectors, says Ficci.
The possibility of a slowdown in exports is substantiated by the prospects of a weak order book position for July-December 2011. In particular, manufacturing orders are likely to further weaken for machinery and electrical equipment. Additionally, export intensive sectors such as textiles, interest sensitive sectors such as automotive components and infrastructure industries such as cement are facing significant uncertainty in their current outlook.
Commenting on persistently high inflation, Ficci said the worrying thing about the latest inflation numbers was that final inflation numbers for primary articles that were consistently lower than the provisional numbers for five straight weeks had now witnessed a trend reversal. Clearly, the serial rate hikes by the RBI did little to dampen the spike in food inflation.
The business confidence report further points that the increase in the government borrowing programme is likely to put upward pressure on the interest rates at the longer end.