Though the demand is expected to increase in the second quarter, sentiments on the availability of finance from banks and internal accruals remained weak.
Business sentiment in India, despite getting better in the fiscal first quarter, has again taken a beating with the industrialists expecting their businesses to perform weaker in the second quarter amid fears of an economic slowdown, RBI said in a survey report. In a response received from 1,231 companies, growth in production, order and capacity utilisation is expected to substantially decrease in Q2 FY20, according to RBI industrial outlook survey of the manufacturing sector. Though the demand is expected to increase in the second quarter, sentiments on the availability of finance from banks and internal accruals remained weak.
Driven by at least six-quarter low business expectations, the trade is also expected to take a hit in Q2 FY20. Pressure from interest payments on borrowings, higher cost of raw materials and salary expenses led the manufacturers to increase the selling prices in the first quarter. However, even then the pessimism in the profit margins continued to prevail.
With moderation expected in the cost of raw materials, manufacturers are optimistic about better profit margins in the second quarter, though there is a weak expectation of a higher selling price. There has been low confidence in finance availability from internal sources, but the companies believe that the overseas financial assistance will slightly improve in the second quarter. Sentiments have largely hurt for the completion of the pending orders. Business expectations growth slumped 11 per cent in Q2 over Q1.
Just before RBI released its industrial outlook survey of the manufacturing sector, RBI Deputy Governor B P Kanungo said that the slowdown is not limited to India, but is global. Decisions taken by individual countries in their favour can eventually hurt other economies, hence the leaders of large countries must act together to revive the global economy, he added.
Meanwhile, the government has been trying to provide liquidity to different sectors to wane the effect of a slowdown in the core sectors like housing, auto, banking, etc. The RBI also cut the interest rate by an unprecedented 35 basis points, which is aimed to increase investment by making borrowing cheaper. Interest rates have been cut substantially by many central banks across the nations.