India’s business confidence hits two-year low

Published Aug 29, 2011 08:37am

India’s hawkish central bank has hiked interest rates 11 times in 18 months in an effort to curb inflation running at close to double-digits in Asia’s third-largest economy. - Reuters Photo

NEW DELHI: India’s business confidence has slumped to a two-year low, according to a survey released on Monday, with companies rattled by a slowing domestic and global economy.

The survey of nearly 300 companies by a leading business body showed its business confidence index had tumbled to 51.6 out of 100 in the April-to-June quarter from 63.7 in the previous three-month period.

“Both global and domestic factors seem to have dented the level of confidence of India Inc.,” said the Federation of Indian Chambers of Commerce and Industry.

The survey, which covered companies from the textiles, steel and energy sectors to autos and consumer goods, reflected “growing apprehensions about the world economy entering into another recession”, the business body said.

“At the domestic level, rising interest costs and weak domestic demand – both in part attributable to the contractionary monetary policy pursued by the Reserve Bank of India – are taking their toll,” it said.

The release of the survey came a day before official data that are expected to show economic growth slowed in the April-June quarter to 7.6 per cent from a year earlier, hurt by the central bank’s aggressive monetary tightening.

The consensus market forecast is lower than the 7.8 per cent expansion in the January-March period as well as the 9.3 per cent growth in the first quarter of the previous fiscal year.

India’s hawkish central bank has hiked interest rates 11 times in 18 months in an effort to curb inflation running at close to double-digits in Asia’s third-largest economy.

India’s economy has grown by around 8.6 per cent a year since 2006 and the government is forecasting similar growth for this fiscal year to March 2012.

However, that forecast is far above bearish predictions of many private economists who expect growth in the low seven per cent range as interest rate hikes bite and private investment slows.

While even seven per cent growth might seem lofty in the face of tepid Western growth, economists say that slower growth would undermine government efforts to tackle India’s endemic poverty.

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