Biz climate improves in July; growth likely to be at 5.3%

Buoyed by increased Foreign Direct Investment inflows and greater revenue receipts for the government, India's business climate improved in July, says a report.

The 'BluFin Business Cycle Indicator', which reflects various macroeconomic trends on a monthly basis, stood at 165.3 points in July, 5.3 per cent higher compared to the same month last year.

On a month-on-month level, BCI has slowed down for two consecutive months. Last month, the BCI was at 167.1 points.

According to financial information provider BluFin, this slowdown threatens the fragile economic recovery.

The projected economic growth rate of over six per cent in 2014 may not be achievable if the monthly slowdown persists for the next month, it says.

Historically, the BCI has grown by an average of 7 per cent year-on-year, the report said. "The key factors with a positive impact on BCI in July include domestic and international air traffic, suggestive improving consumer sentiment, increased FDI inflows and greater revenue receipts for

government," the report noted.

However, it said that factors such as production of intermediate goods like copper and aluminum and a contraction in electricity production pulled back the index.

"The slowdown in the intermediate sector is particularly worrying. Traditionally this sector has helped trigger growth during a down cycle and other sectors have gradually gathered momentum to contribute to sustained economic growth.

"However, for the current cycle, the contribution from other sectors especially consumer goods has been greatly delayed and the intermediate sector may not be able to fuel growth by itself for long," BluFin Vice President (Research and Development) Debopam Chaudhuri said.

The BCI has been forecasting an economic revival since July 2012, although the projected recovery appeared sluggish in the near term.

Based on the current trends, economic growth is likely to grow at 5.3 per cent in the first quarter of 2013-14, which is expected to go up to 5.8 per cent by December 2013, it said.

The index is based on components in four broad categories: capital market, foreign trade, policy and the real economy.