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CII predicts grim six months for industry

NetScribes/Ganesh Ramamoorthy

Even as Indian corporates figure out ways to beat a slowdown, the Confederation of Indian Industries expects more trouble for several industry sectors.

In its 55th Business Outlook survey for April-September 2001, CII predicts that given the grim short-term prospects for industry, profit margins would be adversely affected in the next six months.

"Both basic and capital goods producers predict a worsening of the general business situation in the next six months," the survey says.

"Interestingly, a majority of consumer products manufacturers also foresee a decline in general business scenario in spite of a strong production growth, implying expectations of a decline in consumer spending," it adds.

The "dullness" in business, primarily due to the global slowdown, is also expected to impact capital investments.

Only 49 per cent of survey respondents are expected to make any fresh investment in the next six months compared to 89 per cent (in the 53rd Business Outlook survey). The slowdown is also expected to delay fresh employment in the short term.

Predictions for growth of production show mixed trends with 13 per cent of those surveyed expecting to cut down production in the next six months and 29 per cent foreseeing a low to moderate, 0-5 per cent growth.

About 27 per cent of the respondents expect 5-10 per cent growth, while 31 per cent project a double-digit growth.

However, more than 50 per cent of the companies surveyed expect to achieve 85 per cent capacity utilisation during April-September 2001 while maintaining inventory at current levels.

A slowdown in demand cutting across the sectoral value chain has been and is expected to be the greatest limiting factor to output for majority of the companies.

The sources of demand, the survey reveals, are drying up, be it from the government, the private sector or from overseas.

"This also leads us to a perceived adverse impact from the slowdown in the global economy," the study says.

"The concern with regard to slowdown in the US economy is clearly evident with 61 per cent of the companies indicating that it would affect their short-term prospects," it adds. About 23 per cent of the companies surveyed admit they have been already hit by the slowdown during the last six months.

With the slowdown intensifying competition, 48 per cent of the surveyed companies have slashed prices in the past six months, with only 9 per cent realising higher prices for their output.

The survey expects about 42 per cent of the companies to cut prices and 7 per cent to realise higher prices in the next six months.

While the short-term outlook continues to remain dull for Indian industries, the survey sees an underlying optimism in the long run, based on recent policy announcements.

The implementation of a reform-oriented Union Budget and clear signals of a lower interest rate regime are expected to revive growth, it adds.

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