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CEOs remain upbeat on economy despite overheating concern

Despite concern of overheating, as much as 78 per cent of the CMDs and CEOs feel that Indian economy would not only sustain but improve on the rate of GDP growth between 9.5 per cent to 10 per cent in the coming financial year 2007-08, as the underlying consumer demand and robust investment sentiment are likely to sustain, according to Assocham Business Barometer (ABB) Survey.

The recent growth figures revised by the government for the year 2005-06 at 9 per cent from previous 8.4 per cent and the projections of 9.2 per cent for the current fiscal, have raised the hope of attaining above 9.5 per cent growth rate in the coming year.

Majority of the CEOs are optimistic about continuation of the demand driven growth in the Indian economy. They are sure that contribution of manufacturing and service sector would help economy achieve a growth rate of 9.5 per cent in the coming financial year. 81 per cent of the ABB respondents have said that the industry has the potential of growing at 12 per cent, continuing the growth momentum demonstrated by over 14 per cent growth in November 2005. A good number of 90 per cent respondents are positive about more than 11 per cent growth in services sector in the coming year.

According to survey, the exports growing at 40 per cent, and increased foreign direct investment which has already touched 49 billion dollars and continuous inflows of the foreign institutional investors in the Indian stock markets, are one of the factors, which would ensure continuance of healthy growth rate in the economy.

After growing at a dismal rate of 2 per cent between the period 2000-01 to 2004-05, agriculture hit the growth at 6 per cent. 67 per cent of the CEOs have responded that with normal monsoon and ongoing efforts by the government, the sector may continue to show marked performance like the previous year (2005-06). The non-food credit to the sector has grown by average 34 per cent during the year and amount worth Rs. 1,86,566 crore stood invested on October 2006 in form of credit to agriculture and allied activities.

Index of Industrial Production showed a robust growth at 14.4 per cent in November 2006 pitched by sharp rise in capital goods, higher domestic demand, buoyant investment climate. India Inc is looking forward to high level of business activity counting on lowered customs duty, reduction of corporate income taxes for the foreign companies, incremented investment in infrastructure in the forthcoming budget; and enhanced bargaining power in raising cheaper overseas loans, high exposure limits for foreign banks, increased inflow of foreign direct investments into the economy as a result of improvement in S&P ratings of India.

But at the same time, respondentls feel that it is imperative for the Government to quickly resolve the important issues like land acquisition for SEZs, pension fund bill, FDI in retail, which could act as dampener in the growth process.

Manufacturing sector has witnessed the 9.1 per cent growth rate in the year 2005-06 and 11.3 per cent and 11.9 per cent in the first two quarters of the year 2006-07. Devolving on high saving rate of 32.4 per cent and capital formation of 33.8 per cent during 2005-06, high volume in sales, high selling prices, inventory levels, increasing capacity utilization (above 80 per cent), intensified outward and inward mergers and acquisition activities, the sector holds the promise of around 12 per cent growth in the financial year 2007-08.

The fiscal situation is improving as government witnessed robust tax collections. Gross and net tax revenues registered a buoyant growth at 30.5 per cent and 35.1 per cent, respectively in the first half of the current year were higher than the figures of 21.9 per cent and 23.6 per cent, respectively in the corresponding period of the previous year. Improvement in the tax collections would ensure larger corpus for the government for investment and thus the funds availability for the industry is expected to rise.

The financial markets have shown the signals of good health of the economy. Stock markets have recovered from the bearish phase and sensex has touched 14600 mark, on back of good corporate results for third quarter, declining crude oil prices and 9.2 per cent GDP growth rate for year 2005-06.

90 per cent of the corporate heads surveyed have expressed its concern over the rising inflation and hardening interest rates, which could severely impact the competitiveness of Indian business. ASSOCHAM has called for managing supply side constraints, which have resulted inflation to touch 6.7 per cent. Industry has started feeling the heat with the unabated rise in wholesale and consumer price based inflation rate, hardening of interest rates, and possible impact on the stock markets.

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