The Reserve Bank of India's business expectations index for April-June 2006 declined by 4.1 per cent over the previous quarter ended March 31, 2006.
A sharp rise in the cost of raw materials and increase in inventories of raw materials and finished goods led to the fall in the index.
The business confidence index was almost the same a year ago, according to the results of the RBI's industrial outlook survey conducted in January-February 2006. The report was released on the eve of the announcement of the 2006 to 2007 monetary and credit policy.
The RBI, in its report on macroeconomic and monetary developments in 2005 to 2006, said survey results indicated that the expectations of various indicators in April-June 2006 were better than in the corresponding quarter of 2005 although lower than those in the immediately preceding quarter.
The expectations index based on the assessment for January-March 2006 declined by 2.8 per cent over the previous quarter after its showing highest-ever rise of 8.2 per cent during October-December 2005.
The central bank, however, did not give a detailed reading of the business expectations index.
The buoyancy in manufacturing and services sector activities and the positive business confidence and expectations suggest that the recent growth momentum in the Indian economy is likely to be maintained in 2006-07, as has been projected by different business confidence surveys.
The Indian economy exhibited strong performance during 2005-2006, led by sustained growth in the industry and the services sectors. The Central Statistical Organisation has estimated 8.1 per cent growth in the real Gross Domestic Product in 2005-06 against 7.5 per cent in 2004-05.
The central bank stated the business expectations surveys conducted by various agencies suggest that the industrial sector is likely to continue its strong performance in the near term.
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