DESPITE better growth prospects for all the sectors, skyrocketing oil prices are likely to caste a shadow on the Indian economy.
The textile sector, in particular, may be affected by spiralling oil prices, as major fibre intermediates are derived from petroleum products such as naphtha, according to a report from YarnsandFibers, a market intelligence company.
In the first eight months of 2005, crude oil prices rose 40-50 per cent and naphtha is now dearer by almost 25 per cent. This may set an inflationary trend, percolating down to fibre intermediates and fibres.
Textile companies may see a reduction in bottom lines if they have to absorb the rising input costs and are unable to pass it on to consumers. This could also impact demand. According to YarnsandFibers' second survey on Indian textile business confidence in 2005, textile firms are less optimistic over their performance for the quarter ending September 2005 compared to the June quarter.
A majority of firms also believe that the greatest source for enhancing their performance will be the development of new products, although better pricing capabilities would continue to give them secular growth. There is a noticeable change in the export destination in this survey. More firms are looking at Europe and the US as major export destinations. Asia continues to be the basic market. As many as 48 per cent of the firms indicated that demand would hurt their performance. While 33 per cent said that power is a major constraint, 19 per cent indicated that labour is impeding growth. About 14 per cent felt finance and infrastructure are hurdles to growth.
