NEW DELHI, Nov 23: Low business confidence and lack of proper infrastructural support are likely to cast a dampening effect on the economy for some more time, an apex industry body has said.

The Associated Chambers of Commerce and Industry (Assocham) said the present slowdown in the economy is also a direct result of the indecisiveness of government and called for major policy imperatives to achieve a long- term sustained growth rate.

In its mid-year review of Indian economy, the chamber has said that the overall gross domestic product is likely to be in the range of 5.2 per cent to 5.5 per cent provided services sector maintains its growth tempo.

Recently, the RBI scaled down its GDP projection to six per cent from its earlier optimistic estimate of around six to seven per cent.

Expressing concern over the ballooning fiscal deficit, sluggish domestic demand and widening current account deficit, Assocham said "it seems unlikely that the industrial sector will be able to experience the growth surge of 1995-96 in the second half of 1997-98."

Assocham said the industrial sector has started showing distinct signs of recovery with registering a 6.4 per cent growth during April-July 1997-98, but the recovery is not broadbased as it is concentrated essentially in textile and fertiliser industries in the manufacturing industry and in electricity generation.

"With the industry on a recovery trail, imports are expected to rise and improvement in international demand should improve export prospects," the chamber said but ruled out a double digit growth in exports for 1997-98.

Sluggish domestic demand, dormant capital market and poor credit offtake also affected industrial investments from the second half of 1996-97 until the first four months of this year.

The performance of the industrial sector would depend primarily on a boost in demand from the agricultural sector.

However, contrary to predictions, the record foodgrain production last year has so far failed to translate into a significant increase in demand for consumer goods.

Nevertheless, increase in disposable income due to reduction in tax rates and additional disbursements to the tune of Rs 18,000 crore on account of implementation of the Fifth Pay Commission award are likely to push the demand upward during the second half, the chamber said.

Stating that the budget fiscal deficit target of 4.5 per cent was based on a GDP growth of around seven per cent, the chamber said the Fifth Pay Commission obligation and shortfall in indirect tax collection below the budget expectations are likely to put pressure on containing it.

The chamber gives a mixed signal on prospects of stronger industrial recovery in subsequent months. Quoting the correlation between non-oil imports and industrial growth, Assocham said the 14 per cent increase in non-POL imports during April-September 1997-98 as against a negative growth during the corresponding period last year signified a stronger recovery.

However, it has called upon banks and financial institutions to overcome it averseness to risk in lending to the corporate sector. Though sanctions by financial institutions (FIS) have shown a sharp rise of 24 per cent, disbursals have remained low during April-July compared to the previous year, the chambers said adding "this is yet another indication of new investments in industrial projects not picking up."

It also feels that infrastructural inadequacies have become more glaring now.

Copyright © 1997 Indian Express Newspapers (Bombay) Ltd.