Uncertainty surrounding the global economy, rising inputs cost and high interest rates had led to a decline in business confidence during the quarter that ended December 2011, says a survey by the Confederation of Indian Industry (CII).
The industry lobby's quarterly business outlook survey said on Sunday that the business confidence index for the third quarter of 2011-12, had declined 5 per cent and stood at 48.6 from 53.6 in the previous quarter.
"It is obvious that industry's outlook during the quarter has been poor. But hopefully 2012 would improve outlook as we start seeing some positive developments including moderating inflation, a more accommodative monetary stance and hopefully a growth oriented budget," said Chandrajit Banerjee, CII director general.
The survey found that small firms expected domestic and international investments to decline or remain stagnant in the quarter ending December 2011 which might affect their expansion plans.
"A worrisome trend that emerges in the survey is that a majority of firms registered a stagnation or decline in availability of credit in Q2 (second quarter) 2011-12. The Majority continue to expect credit availability to be constrained in Q3 (third quarter) 2011-12," the survey said.
Banerjee said stagnation in investment plans had emerged as a key concern in the current macro-economic scenario.
The survey further reveals that firms have reported a slowdown in sales, new orders, production and pre-tax profits in Q3 2011-12 as compared to Q2 2011-12.
It showed that high fiscal deficit as the top business concern of most firms, followed by surge in imports, increase in competition, inadequate skilled labour and stagnancy in reforms.
"Issues of high importance that need to be addressed include land availability, labour reforms, cost of capital, taxation regime, transportation infrastructure, availability and cost of power and environmental clearances," the survey said.
The survey reported a marginal decline in business confidence levels for micro, small and medium enterprises (MSMEs) by 0.3 points to 54.3 for the quarter ending March 2012.
CII, however, said some steps taken recently by the government such as factor regulation bill for improving liquidity, coupled with the decision to allow micro finance institutions to draw up to $10 million in external commercial borrowings (ECBs) would help the MSME sector in dealing with the slowdown.