Credit crunch, weak demand plague Indian industry: FICCIOctober 5th, 2008 - 3:45 pm ICT by IANS
New Delhi, Oct 5 (IANS) Rising interest rates and lean credit flow have eroded the confidence level of corporate India, according to an industry lobby survey.The survey by the Federation of Indian Chamber of Commerce and Industry (FICCI) said the overall business confidence index has declined further from its last quarter value of 55.3 points to 52.5 points in the July-September quarter.
According to the report, over the last 12 months, the interest rate or the financing cost for companies has gone up in the range of 150 to 550 basis points.
As a result of the high interest rates, 48 percent of the companies surveyed said they were either reconsidering or postponing some of their projects.
“Nearly 75 percent of the participating companies agreed that banks have tightened their credit disbursal norms over time and thereby restricted the availability of credit to industry,” the report said.
Nearly 97 percent of the participants said small and medium enterprises (SME) are facing the pressure most on account of the high interest rates.
The interest cost for SMEs has gone up by 3.5 percent to 5.5 percent over the last one year, while that of large companies has gone up by 1.5 percent to 2.5 percent over the same period.
About 82 percent of participants are of the view that the Reserve Bank of India (RBI) in consultation with the government should consider a scheme that offers productivity-linked incentives to SMEs.
“In the global context of acute competition and overall slide, the high cost of credit, reduced availability of funds and weak demand have created added hardship for the Indian corporate in a globalised market,” the report said.
With input and manpower costs on the rise, the profit margins of many companies are under severe stress and this situation is likely to continue at least for six more months.
However, the recent relaxation of the external commercial borrowing limit from $100 million to $500 million for infrastructure projects is a positive measure, the report said.