High interest rates,oil prices hit business confidence

New Delhi, Apr 14: Impacted by hardening of interest rates and volatile crude oil prices in the global market, the growth momentum of the Business Confidence Index in India has started petering out since January 2006, the NCAER has said.

The 56th round of the BCI, worked by the National Council of Applied Economic Research, lost its momentum and grew by only 1.7 per cent during January-March 2006 against 3.7 per cent during October-December,2005.

''Although, BCI is reflecting an increasing trend from October 2001, its growth momentum from April last year is petering out'', the NCAER said. Hardening of the interest rates and high and volatile crude oil prices are among the main culprits for the slippage in the confidence of the businessmen.

''Hardening of interest rates and high and volatile crude oil prices are affecting both topline and bottomline of the corporate sector'', the prestigious think tank said in its quarerly Business Expectations Survey.

It said while the BCI had shown improvement in the previous round, this time future financial position of firms reflected a minor deterioration.'' The impact of rising interest and commodity prices in the form of oil prices is being reflected on the future financial position of firms'', it added.

However, higher rating of 97 by the firms on capacity utilisation close to or above optimal clearly reflects that the capacity which have been created in the mid-nineties are being used fully.

''Investment cycle started last year is not yet over and new investment/capacity expansion is going to stay for some more time.'' As for the sectoral view, the NCAER said that in line with the trend of IIP (Index for Industrial Production) growth, capital goods sector is the flag-bearer of upbeat sentiments.

However, consumer durables and services sector firms turned bearish in the latest round of the business confidence index. For this sector, both macro indicators pulled down sentiments, whereas for the services sector both macro indicators and financial position pulled down sentiments.

''Firms from all sectors except capital goods turned bearish on the future financial position of firms'', the survey said.

Across four regions of the country, firms from the western regions had the highest confidence and eastern regions had the lowest BCI.

While in the previous round, eastern region firms pulled down overall BCI, in this round, southern region firms pulled it down.

Western region firms' sentiments in this round have increased by 7.8 per cent. All firms from the western region opined that their capacity utilisation is above optimal.

UNI