Given the global economic scenario, a 7% GDP growth is nothing to feel dismal about. But India Inc. is not smiling. According to a recent survey by the Confederation of Indian Industry (CII), industrialists are subdued about the prospects for the country’s economy. This is reflected in the CII-Business Confidence Index (CII-BCI). For the third quarter of 2011-2012 (October-December), the CII-BCI stands at 48.6 points. In the previous quarter it was at 53.6. Since the last quarter of 2010-2011, the index has fallen by a total of 18.1 points.
According to the survey, industry leaders expect sales, output, new orders and pre-tax profits to decline. The rising costs of electricity, fuel and wages are seen as major dampeners. The majority of the companies surveyed expects exports to either decline or stagnate. Capacity expansion within India’s business community mirrors the subdued sentiments. Close to 57% respondents in the CII survey said that there was no planned expansion in the third quarter. They did not see it happening in the near future, either. Talking to Indian business daily Business Standard, Chandrajit Banerjee, director-general of the CII noted that “stagnation in investment plans has emerged as a key concern in the current macroeconomic scenario.”
Global investors view India differently, however. Studies show that India continues to be an attractive destination for foreign direct investment. The recent Ernst & Young 2012 India Attractiveness Survey ranks the country fourth below China, the U.S. and Brazil. India’s growing domestic market is fueled by a middle class that is expected to expand from 160 million in 2011 to 267 million by 2016. The country’s large and qualified workforce and its cost competitiveness are also seen as the major factors driving investor interest.
“India’s domestic demand-driven growth model is acting as a catalyst for attracting foreign investments into the country,” Rajiv Memani, country managing partner of Ernst & Young India, said in a media report. “Although the ongoing global uncertainty may have prompted global investors to become more cautious, India’s inherent advantages and proven resilience to counteract macroeconomic challenges generally outweigh these concerns.”
The E&Y survey notes that while India has been known more for services up to now, it is also emerging as a manufacturing location for many global corporations. The survey also projects an upswing for India’s private equity sector. “Despite the ups and down over the past decade, PE has emerged as a very important investor in India Inc. and with the long-term India growth story still intact, PE funds continue to look eagerly at investing in India,” according to the report.
Meanwhile, even as the World Bank predicts that for the current fiscal year, India’s economic growth will be around 6.8%, officials at the country’s finance ministry are pegging it at little higher than 7%. They also expect next year’s growth to be higher than the World Bank estimate of 6.8% and are likely to project it around 8%.