The protectionist approach of developed economies could have an adverse impact on export performance of India, which is already grappling with low demand as the majority of companies are not getting the benefit of credit flow at lower rates, says a report. However, the impact of demonetisation seems to have ebbed at a much faster pace than earlier anticipated, according to the findings of Ficci’s latest Business Confidence Survey.
The survey was conducted during the months of March-April and saw participation of nearly 185 companies. The outlook pertaining to operational parameters shows that during the period April to September 2017, nearly 65 per cent of the companies expect better sales performance, 42 per cent expect profits to increase and 40 per cent expect to invest more than their current investments levels.
Moreover, 31 per cent expect export demand to be better than what it is now and 27 per cent plan to hire more, making additions to their workforce. However, a majority of the firms are still not getting the benefits of credit flow at lower lending rates despite a cut in interest rates by banks, says the report.
About 67 per cent of the participants responded in the negative when asked if they have benefited from the lower cost of credit, indicating that a large set of companies is not getting the benefit of credit flow at lower rates.
According to the survey, nearly 54 per cent participating companies feel that current economic conditions are ‘moderately to substantially better’ compared to the previous six months. Further, the economy is expected to do even better in the coming six months according to 79 per cent of the participating companies.
“With remonetisation of the economy at a much advanced stage, things seemed to be turning normal for the corporate sector. In the latest survey, confidence level has seen a rebound, touching an eight quarter high, vis-à-vis a drop seen in the previous survey wherein confidence was hit due to a demand squeeze caused by demonetisation,” the survey noted.
The participating firms reported an improvement in the current conditions and performance level and expressed hope of a better turn-out in the coming six months, which could be a harbinger for better economic growth in the current year.
While the impact of demonetisation on demand situation has eased considerably, the natural build up following improving economic performance is still happening at a slow pace.
Both the government and the central bank have taken a slew of measures over the past couple of years to moderate the lending rates in the economy.
The Reserve Bank of India has cut the repo rate by 175 bps between January 2015 and October 2016; the interest rates on small saving scheme were reset and marginal cost of funds based lending rate was introduced last year. Earlier this year, following the rapid build-up of deposits, some major banks revised down their lending rates.