Hit by the global economic meltdown, lack of funds and falling exports, corporate India's business confidence has sunk to a seven-year low, says the latest FICCI survey by an industry lobby. The Survey for the second quarter of 2008-09 said there has been a significant deterioration at three levels- economy, industry and organisation.

"With exporters facing cancellation of orders, and a huge majority of the corporate putting brakes on fresh hiring of hands and bank loans still hard to come by, there is a sense of gloom in corporate boardrooms," said the survey report, which was written before the Rs.70 billion fraud in Satyam Computer Services, India's fourth largest IT company, broke.

Survey results also show that close to 88 percent of the companies' feel that the economic situation has deteriorated over the last six months. Further, 52 percent feel the overall economic conditions would weaken further in the coming six months. The report said this deterioration is mirrored in the value of current conditions index, which has witnessed a steep decline from a level of 45.8 in the last survey to a low of 24.7, falling into the "significantly pessimistic" zone. Further, with expectations with regard to performance at the economy, industry and firm levels also taking a significant beating, the Expectations Index has also fallen from its value of 55.9 in the last survey to 44.3 in the latest one.

The Overall Business Confidence Index has dipped significantly from 52.5 in the last survey to 37.8. The survey also noted that buyer's behaviour is changing at a quick pace, and companies are reporting that foreign buyers are demanding discounts. "Companies said that they have already started facing cancellation of orders and that price competition from other countries (particularly China) is pinching them hard. And while default on payments has not emerged as a major concern as of now, foreign buyers are definitely asking for longer period for making payments and some of them have also stopped making advance payments," the report said.

About 84 percent of the companies said they have already imposed or are considering imposing limits on fresh hiring, while 68 percent said they have decided to or are considering not filling vacancies. Almost 57 percent reported that to bring down costs, they have started or are planning to reduce casual workers. The survey also said the benefits of easier monetary policy are not reaching the corporate sector and easy credit availability remained a key issue for India Inc.

Nearly 70 percent of the companies said that even after monetary measures by RBI (Reserve Bank of India), banks have yet not eased credit disbursal norms and have also not increased lending to corporate." A majority 55 percent also reported that banks have not reduced interest rates for corporate lending.

Originally published in The Stitch Times: March 2009