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'Surging rupee, interest rates affecting business'

business Updated: Aug 26, 2007 11:53 IST

The appreciating rupee against the US dollar and a resultant surge in interest rates has led to a sudden dip in the confidence level of corporate India, says a survey.

Industrial growth, exports and investments have been worst hit due to unabated rise of the Indian currency, and if this is not tackled then economic growth may slowdown, said a survey conducted by Federation of Indian Chambers of Commerce and Industry (FICCI).

Sectors that have been worst hit due to both factors include IT, auto, textiles, pharmaceuticals, constructions, real estate, food and beverages.

The survey highlighted that almost 30 percent of the companies surveyed showed weak demand as a constraining factor. The survey results also show that certain segments of the industry have been forced to cut down on production in the wake of weak demand.

"The continuation of the high interest rate phase along with the movement of the rupee in a narrow band close to Rs.40 to a dollar mark has made corporate India apprehensive about their own performance," the survey said.

Due to a sudden slowdown of the key sectors of the economy, prospects of employment have also suffered a setback.

"With regard to industry performance in the coming six months, we see that the sentiment prevailing among respondents from the services sector has taken a strong hit," FICCI said.

Companies also fear a decline in sales and profit margins if measures to arrest the rupee rise are not taken immediately. The survey said over 16 percent of the companies feel that their profits would be hit.

Since the escalating rupee has adversely affected the services sector and the light industry sector, respondents from these two sectors have projected a downslide in their export performance in the coming six months.