Corporate India is facing weak sentiments due to various developments like the war in Iraq, outbreak of SARS, lagged drought effect, forecast of a below normal monsoon, non-clarity over VAT, truckers' strike and cost pressures, according to the latest Business Confidence Survey by the Federation of Indian Chambers of Commerce and Industry.
However, there have been some signs of a pick up in investment while mild improvements have been witnessed in capacity utilisation and sluggish demand conditions, the survey said.
The FICCI survey was conducted through responses from 584 diversified companies with turnover ranging from Rs one crore (Rs 10 million) to Rs 1,15,000 crore (Rs 1,150 billion) for the fourth quarter of 2002-03.
"Despite strong fundamentals of the economy like buoyant industrial growth, fairly steady growth of the services sector and sustained export momentum, business confidence has been dented due to international developments like the war in Iraq, outbreak of SARS and continued slide in global economy. Internally, problems with implementing VAT has created uncertainities for the industry," the survey said.
Overall, the Business Confidence Index has declined by 8.4 per cent to 63.3 per cent.
The current overall economic conditions as compared to the last six months has been viewed as 'moderately to substantially better' by 50 per cent of the respondents as against 71 per cent in the last FICCI survey.
The number of companies who expect the economy to perform 'moderately to substantially better' in the next six months has also declined to 56 per cent from 68 per cent in the last survey.
"This dampening of spirits despite a continued buoyant performance by both industry and services can be attributed to the drought factor which initially was downplayed by India Inc," the FICCI survey said.
The respondents outlined a series of reform measures to achieve the targeted eight per cent annual gross domestic product growth rate.
These include building physical and social infrastructure, fiscal reforms, promoting flexible labour, agricultural reforms, accelerating divestment and removing small-scale reservations.
The survey pointed out that the heavy industry was the most upbeat with current performance followed by services and light industry. Only 47 per cent of the respondents felt the current performance of their industry was 'moderately to substantially better' as compared to last six months, down from 58 per cent in the previous survey.
However, 60 per cent of them expect their industry to perform 'moderately to substantially' better in the coming six months which showed that they feel the current uncertainity was a temporary phase.
Current firm level performance has also witnessed a decline with 59 per cent saying it was 'moderately to substantially' better as compared to 71 per cent in the last survey.
Also, a much more substantial 68 per cent anticipate 'moderately to substantially better' firm level performance in the coming six months. This again was lower compared with 76 per cent who responded in the last survey.