The Hindu : Business : Rising fuel price dents business confidence

Online edition of India's National Newspaper
Friday, Aug 18, 2006

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Business

Rising fuel price dents business confidence

Special Correspondent

Cost of credit another area of concern

NEW DELHI: Rising oil prices globally and hardening of interest rates have dented the overall business confidence of corporates.

The Business Confidence Survey of the Federation of Indian Chambers of Commerce and Industry of India (FICCI) for the first quarter of 2006-07 shows that the index is only a notch higher than that recorded in the same quarter in 2004-05.

The survey released on Thursday rings warning bells on the near-term performance of corporates on all operational parameters, namely sales, selling price, profits, investments, employment and exports.

The three confidence indices computed by FICCI in the present survey have dropped in comparison to the last round. While the Current Conditions Index and the Overall Business Confidence Index have been relegated to the `moderately optimistic' zone, the Expectations Index continues to remain in the `significantly optimistic' zone.

Recent rounds of the survey have identified rising input prices as a key constraint for corporates. Further, rising fuel prices due to political uncertainties in West Asia accentuated supply side pressures.

The results of the present round of FICCI Business Confidence Survey, conducted during July-August, show that there has been a strong moderation in the views of industry with regard to economy and firm level performance.

Light industry, that is the SME sector, is feeling the pinch even more as the cost of borrowing goes up, the survey findings reveal. For the third quarter in a row, 70 per cent of the companies have reported rising cost of raw materials as a constraining factor. Rising fuel prices have further limited the operational manoeuvrability of companies.

Added to this, cost of credit has increased with the hike in interest rates leading to 36 per cent of the companies reporting high cost of credit as a constraining factor to their business performance. Only 22 per cent of the companies reported likewise in the last survey.

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