The Confederation of Indian Industry (CII) has predicted an economic growth of 9.2 per cent in the current fiscal year, only marginally down from 9.4 per cent last year, but warned of loan defaults in export-driven manufacturing sectors such as apparels and leather goods arising from a sharp rise in the value of the rupee.
The industry chamber also said in a “State of the Economy” report released on Sunday that it expected interest rates to soften while it sought a slew of measures to arrest adverse fallouts of the rupee on export performance.
CII said it expects agriculture, industry and services to grow by 3 per cent , 9.4 per cent and 11.2 per cent, respectively, in 2007-08.
“CII expects a lower growth of 9.2 per cent in 2007-08 owing to factors such as global slowdown, inflation, falling demand as a consequence to rising interest rates, appreciating rupee and poor infrastructure,” the report said. While that would show a fairly steady economy despite constraints, CII painted a grim picture on textiles and leather industries.
“The erosion of the profits margin of textiles and apparel and leather and leather products could have a long-lasting impact on employment as these sectors are highly labour intensive. Moreover, if corrective actions are not taken at the earliest, we might even see credit defaults leading closure of the units,” the report said.
Smaller players are harder hit in these industries, and the rupee’s 11 per cent appreciation over the past 12 months has cast doubts on India achieving its export target of $160 billion in 2007/08, CII said. It said exports were in a disadvantageous position in a price sensitive international market because the currency rates of Asian competitors had risen less.
CII said its survey of textiles and apparel export companies in the last financial year revealed that there has been a decline in total revenue, operating income and profit margin to the tune of 7.9 per cent, 8.9 per cent and 7.9 per cent respectively. Further, there could be an erosion of profit margins to the extent of 10.4 percent during the next six months only on account of a stronger rupee,” it said.
“If we add the impact of rise in interest rates on the profit margins, it is a further decline of another 1.5 percent,” it said.