Rising rupee, interest rates affecting biz sentiments: FICCI

Notwithstanding a good monsoon that portends well for rural demand, the other two key drivers of the economy -- exports and investments - are showing signs of moderation as a result of successive rise in interest rates and appreciating rupee, industry body FICCI said on Sunday.

"The adverse impact of rising interest rates and appreciating rupee has engulfed many more sectors and many more firms," FICCI said in its Business Confidence survey.

The chamber said the assessment made by the participating companies about industry and firm-level performance shows that the industry is in the midst of a moderate slowdown.

Pointing out that a rising rupee and hikes in interest rates have affected the sentiments at ground level, the survey revealed that industrial growth was a matter of concern. "Unless we take actions to reverse this situation we may face a situation of slowdown in growth," it said.

The Indian currency has risen more than 10 per cent against the US dollar in the past one year, while the Reserve Bank has raised key interest rates six times in the past two years to cool inflation.

Of the participating companies, 58 per cent respondents reported that their current industry performance is 'moderately to substantially' better vis-a-vis last six months. In the last survey, 68 per cent had reported likewise.

With regard to firm level performance, 64 per cent of the companies reported current performance was 'moderately to substantially' as compared to 73 per cent in the last survey.

As a result of the weakening performance both at the industry and at the firm level, the Current Conditions Index computed by the chamber has nosedived from 70.4 in the last survey to 65.0 in the present survey.

However, on expectations regarding performance during the next six months, the survey revealed that respondent's outlook for the economy has improved as compared to last survey. The results related to expected performance at the industry and firm level were similar to the results obtained earlier.

The survey revealed that demand condition in the economy was weakening. Nearly 30 per cent of the companies have reported 'weak demand' as a constraining factor.

"Certain segments of the industry have been forced to cut down on production in the wake of weak demand," it said. In the last survey, 72 per cent of the participating companies had reported a capacity utilisation level of more than 75 per cent, which has come down to 60 per cent.

While the outlook for investments and exports have taken a hit, some moderation in terms of expectations regarding profits and employment over the next six months is also visible, the survey said, adding services sector have emerged as the most apprehensive about its near term performance.

In case of services, 59 per cent of respondents reported 'moderately to substantially' better performance as against 75 per cent in the last survey, while in heavy industry the figure has come down to 57 per cent in the current survey as compared to 66 per cent in the last survey.

As regards performance over the next six months, while 80 per cent of the respondents from services sector were optimistic about their performance during third quarter of 2006-07, this proportion fell to 67 per cent in quarter four 2006-07 and has further come down to 59 per cent in the current survey.