Giving thumbs down to the economic outlook on high inflation and hardening interest rates, majority of 77% of the 421 CEOs surveyed by the ASSOCHAM under the banner of its ASSOCHAM Business Barometer Survey expect GDP growth to surpass 8.7 per cent rate for the financial year 2011.

ASSOCHAM has revised its November GDP projections from 9% to further southwards at 8.7% as double digit inflation coupled with tight monetary policy is pinching the industrial units due to increased interest and input costs. The CEOs fear that, RBI may take further steps with revision in interest rate if domestic inflation continues to remain in double digit.

The survey found that industry leaders fear that economic growth may moderate in view of rising prices of fuel and manufactured goods. On the other hand Cement, steel and other commodities have pushed up as well while prices in the auto sector and consumer durables are set to factor in the rise in input prices.

58 per cent of the business heads felt the economy is double hit with high inflationary pressures caused due simultaneously rising energy and commodity prices and tightening money situation.

ASSOCHAM said that “The Indian economy has the potential to grow faster than 9 per cent recorded before the 2008 global financial crisis and stay at that level. However, to sustain such levels, there are no easy options and ‘significant deepening of reform initiatives is needed.”

At the projected growth of 9%, there will be a need to invest INR 44.90 trillion, in the next five year plan (2012-2017) which will translate into 9.95% of GDP, as said by the Government of India.

It has further added, in FY11 as the private sector demand; both consumption as well as investment picked up. However, the government consumption demand is expected to moderate on account of fiscal consolidation plan and gradual withdrawal of stimulus packages announced earlier. Nonetheless, the focus of government spending on infrastructure sector would continue to support growth.

About 89 per cent of the ABB respondents were of the view that the Industry may witness a growth rate of 11.2% in FY 11 on account of sharp rise in input costs, lower demand, huge interest bills and week sentiments. Manufacturing which constitute a share of around 17% in the total GDP witnessed slowdown in the growth rate for the period October-December 2010-11 from 11.5% to 5.6% in the same period of the previous fiscal.

Sixty five per cent of the respondents felt that the consumer durables are becoming less affordable due to high interest rates, rising raw material cost, high fuel & power prices and costly transportation charges. They added that despite the rise in raw material cost like iron ore and agri products the consumer durable and non-durable firms are unable to increase the prices of finished products, as it will suppress demand further creating more pressure on companies’ profit margins.

Market sentiments, increasing interest rates coupled with fuel price hikes and increased input costs can dampen the Indian automobile sector. The growth rate is likely to slow down to 12 to 14% in 2011 as compared to 31% in 2010.

According to 87% of the CEOs the impact of rising prices of fuel, copper and steel coupled with high interest rate and low availability of credit might hit the sales in the near future.

For the agricultural sector that grew by 0.2% during FY10, good monsoon during 2010-11 have led to an increase in the food grain production but at the same time some cotton growing regions in the country witness sparse rain with sowing delayed by a fortnight that might hit the textile industry with decline in production and exports.

Almost 55% of the CEOs responded that agriculture sector may maintain a decent growth of 4.1% growth in the financial year 2010-2011 on account of rising food prices that will help boost the farmers to produce more.

In the services sector, FY10 was a tough time with rupee appreciation and due to a spillover of Europe’s economic woes forcing firms to cut on staff and project cost. The financial year 2011 is providing an inflationary pressure that is compelling RBI to take tight monetary measures impacting the growth of banking and financial services.

67% of the respondents felt that financial services, which contribute to 14.7% share in GDP, may register lower growth if RBI uses further hike in interest rates to contain inflation.