Business confidence dropped for a consecutive quarter in January-March 2012-13, says a survey of the Federation of Indian Chambers of Commerce and Industry (FICCI), seen at to 57.4 as compared to 61.2 during the previous quarter.
However, there was optimism on the future.
It said investment activity was expected to improve, as industry felt the recent steps taken by the Cabinet Committee on Investment to expedite the process of granting project clearances would unlock huge investments in core sectors.
The report added the recent easing of Wholesale Price Index numbers would also give some more space to the central bank to consider a further cut in policy rates. Respondents felt such a cut in lending rates by banks at this juncture was very important to boost investment plans.
Also, the slight improvement in the Index of Industrial Productivity and of export numbers signalled signs of recovery and it would be crucial to keep nurturing these, it added.
The FICCI survey participants pointed to the marginal decline in interest rates for both working capital and term loans over the past six months as evidence of weak monetary policy transmission following a reduction in policy rates.
About three-fourths of respondents have emphasised the importance of support from banks by way of lower lending rates at the present juncture to support investments and overall growth. About 36 per cent of the participating companies felt the current economic situation was moderately to substantially better over the previous six months.
The corresponding figure in the earlier survey (third quarter of FY13) was 45 per cent; a year before, it was 38 per cent.
About 49 per cent of participants said they anticipated an improvement in the overall economic situation as compared to the first two quarters of FY13.
The participants indicated weak demand to be a worrying factor. Also there was a marginal increase in the proportion of respondents citing cost of credit to be a concern. The survey drew responses from about 200 companies, with a yearly turnover ranging from Rs 10 lakh to Rs 1 lakh crore.
These were from an array of sectors.