India Inc. pessimistic about the economy, expect lacklustre GDP growth

Monday, 3 September 2012 - 7:00am India News Bulletin Desk

A majority of chief executives of major companies in India are pessimistic about the outlook for the Indian economy in its current fiscal year and expect only a moderate recovery, a study by CII showed.

Not a single chief executive polled by the CII (Confederation of Indian Industry) was confident that India’s GDP will grow more than 7% in 2012-13 while almost half (44%) said they expect the GDP growth to remain below 6%.

The CEOs’ pessimism continues to the next fiscal year too as more than half of the respondents (52%) said they expect GDP growth to remain in the range of 6-6.5% in 2013-14. Only 36% of chiefs said the GDP could grow upto 7.5% in the next fiscal year.

“This reflects low confidence levels in the industry,” said Chandrajit Banerjee, director general, CII.

The official statistics released last week revealed that India’s GDP grew by just 5.5% in the April-June quarter which is the first quarter for the fiscal year April 2012 to March 2013.

“The first quarter GDP growth corroborates the fact that the slowdown is sustaining,” Banerjee added.

CEO pessimistic about inflation rates too

The CII questioned the respondents on inflation too and a majority of CEOs (56%) said they expect the average rate of inflation in 2012-13 to be between 7% and 8%. Only one third (32%) said they expect inflation to be lower between 6% and 7% while a few CEOs expected it to touch the 9% mark.

India’s central bank, RBI, has projected the inflation rate to be about 7% by March 2013.

The chief executives cited rise in costs as the biggest factor for inflation rates to be high. Some cited high demand fueled by higher purchasing power and higher standard of living as responsible for high inflation rates.

Seven out of every ten chief executives polled said that they are not expecting any economic reforms to move forward given that general elections are coming up in 2014.

India needs reforms to boost the economy – these include introduction of GST, rise in FDI cap in insurance and pension sectors, allowing FDI in multi-brand retail, containment of burgeoning fiscal deficit through reduction in subsidies and de-control of fuel prices, simplification of process for getting approvals and faster clearance of projects already in the pipeline.

The Indian chief executives also felt that both domestic and international investment will either either increase or remain unchanged during 2012-13.