The outlook for the Indian economy remains buoyant but the risks of rising interest rates and appreciating rupee remain, says Dun & Bradstreet (D&B), the world's leading source of global business information, knowledge and insight.
"Though business confidence is difficult to predict over the long term, we remain confident over the long term growth prospects of the Indian economy. During the next quarter, business confidence could be determined by movements in inflation and the monetary policy stance of the RBI (Reserve Bank of India)," said Kaushal Sampath, CEO, D&B India Private Limited.
He said it would it difficult to quantify the exact impact of the appreciation of the rupee on the Indian economy.
"Theoretically, the appreciation of the rupee will make our exports more expensive and therefore less competitive. At the same time, imports will become cheaper. We need to wait and watch the RBI's stance with respect to the rupee appreciation," Sampath told IANS in an interview.
"The Indian economy continues to look optimistic; latest growth estimates reveal that GDP grew by 8.6 per cent during the third quarter of financial year 2007," he said.
The industrial sector has also continued to display a healthy performance. The index of industrial production (IIP) grew by 12.9 per cent in March 2007, taking the cumulative IIP growth for the fiscal year to a 10-year high of 11.3 per cent.
The capital and intermediate goods sectors have also registered impressive growth rates of 13.2 per cent and 13.3 per cent respectively in 2007 - an indication of continued robustness. Industrial production is therefore likely to continue with its current momentum.
"Interest rate hikes and an appreciating rupee, however, remain a downside risk. Growth in the consumer durables sector has slowed down to 9 per cent in 2007, as compared with 15.3 per cent in the previous fiscal. A high base effect on the growth of consumer goods is evident, but nevertheless the impact of rising interest rates cannot be completely ruled out," he said.
During the first quarter of the current fiscal (April-June 2007), the composite Business Optimism Index (BOI) stood at 201.2 points, recording an increase of 3.4 per cent on a quarter-on-quarter basis. On a year-on-year basis, the BOI recorded an increase of 13.3 per cent.
Four of the six optimism indices, namely volume of sales, net profits, selling prices and new orders have decreased as compared to the previous quarter. The capital goods and intermediate goods sectors were the most optimistic, particularly with regard to order book positions. The consumer durables sector, on the other hand, seemed the least optimistic with regard to most parameters.
The D&B survey provides a barometer of the business community's expectations with regard to certain key parameters.
"It is a measure of business confidence and provides advance information on the short-term business outlook and on turning points in the business cycle," said Sampath.
The RBI frequently quotes the D&B BOI in its monthly bulletin.
D&B, which has been enabling companies to decide with confidence for 165 years, set up operations in India in 1995 and it has offices in Mumbai, New Delhi, Chennai, Bangalore, Kolkata, Hyderabad and Ahmedabad.
The composite BOI, launched in Q2 2002, is based on a survey of business expectations and is conducted on a quarterly basis. The findings are released in January, April, July and October.