Extended stagflation delaying recovery prospects: CII poll

The continued stagflation characterised by slow growth and high inflation is delaying economic recovery in India, although an upswing in economic activity is not out of reach, a snap poll of CEOs conducted by the Confederation of Indian Industry showed.

High inflation and weak growth has complicated the central bank`s efforts to cool prices without worsening the slowdown while adding to industry concerns of getting back into investment mode.

Unless the stagflation is broken economic growth would be hard to come, according to a majority of chief executives polled on Monday.

The opinion poll of chief executives, conducted at the CII's national council meeting, indicated that growth may not touch 5 per cent in the current fiscal.

Most of the respondents (42 per cent) expected the economy to grow in the range of 4.5-5.0 per cent, followed by 32 per cent expecting it to register a growth in the range of 5.0-5.5 per cent.

''We believe that 5 per cent plus growth is still not out of reach. With a significant improvement expected in the growth of agriculture output in the current year, we hope to see an upswing in the sectors, which have traction from rural demand,'' Chandrajit Banerjee, director-general of CII, stated.

About 65 per cent of the respondents said that they did not expect investments to revive before the second quarter of the next fiscal, ie, April-March 2014-15.

Political uncertainty was ranked as the highest risk factor affecting the business confidence of India Inc.

While most of the CEOs polled (nearly 82 per cent) felt that the value of rupee against US dollar was favorably affecting their exports thereby easing the current account situation, about 53 per cent of the respondents also did not see any adverse impact of the rupee fall on imports.

Going forward, a majority (53 per cent) of the respondents expected the rupee to remain below Rs62 per dollar at least till the end of the current fiscal.

About 37 per cent of the respondents expected that their credit demand will remain unchanged during the second half of the current fiscal.

Similarly, 50 of the business leaders did not see any perceptible change in their investment level during the second half of this year.

The CEOs were also not convinced of the efficacy of the Cabinet Committee on Investment (CCI) in clearing large projects, with 56 per cent of the respondents saying that the CCI did not had the intended impact on the investments so far.

''This clearly implies that there is a need for strengthening policy intervention to revive investment demand, both by the government as well as RBI. Among other critical measures, the government should be focussing on stepping up its capital expenditure whereas RBI should be adopting a softer monetary stance'', Banerjee said.

In the survey, 50 per cent of the respondents expected their sales and exports to grow moderately during the second half of this fiscal. However, a majority of the respondents expected profit margin to decline due to pressure from hardening input prices.

A majority of the respondents (42 per cent) expected inflation to increase moderately in the second half of the year.