With policy reforms and Goods and Services tax (GST) becoming a reality very soon, India has bounced back and has ranked 2nd on the optimism index during the third quarter (July-September 2016) in the latest Grant Thornton International Business Report survey. Country ranked third during the April-June quarter after being on top globally for two consecutive quarters.
The scale and the report, are prepared basis the results of a quarterly conducted global business survey of 2,500 businesses across 36 economies.
High business optimism was also complimented by the rise of employment expectations. India regained its top position on this parameter, which dropped to second position in the previous quarter (April-June) from top rank in January-March period. India Inc.’s profitability expectations also moved up to rank three from fourth position during the third quarter.
While India Inc. has displayed firm resilience and has reinstated the lost optimism in India’s economic growth story, the survey shows a drop in the ranking of revenue expectations. India slipped to third position from top in the previous quarter on expectations of increasing revenue. In spite of the downturn, India is much ahead of China where only 30 percent respondents expect an increase in revenue, whereas in India, 85 percent respondents have voted in favour of increasing revenue.
India continues to rank 2nd on the parameter of optimism for an upsurge in selling prices. 68 percent of the respondents have voted for an upsurge. On this parameter too, China lags India with only 10 percent of respondents expecting an upsurge in selling prices. Contrary to this, the global average is 19 percent.
“The improvement in the optimism ranking in the recent past clearly reflects that the reform agenda of the Government and its efforts on improving the climate for doing business are having an impact. This coupled with all the programs and initiatives of the Government as well as its focus on building relationships with all major economic powers has made India a bright spot in the global economy. India with its large population, geographical spread and open economy clearly offers the best opportunities to global and domestic investors and this is reflected in the business optimism index. The stable political climate in an ocean of global uncertainty has clearly helped. The recent push for GST augurs well and should give a further boost to business optimism in future” said Harish HV, Partner – India Leadership team, Grant Thornton India LLP.
With the rise in business confidence, the optimism for an increase in exports witnesses a consistent rise. According to the survey report, 38 percent of the respondents expect an increase in exports, which is three points higher than previous quarter (35 percent voted for an increase in exports during Q2 2016). While India continues to be amongst the top five countries citing regulations and red tape as a constraint on growth, for the first time in the year, the ranking on this parameter has dropped from 2nd to 4th position. As per the survey, 59 percent of the respondents have quoted this as an impediment in the growth prospects compared to 64 percent in the previous quarter.
As the optimism is riding high in India, the IBR shows a sharp increase of 12 points in the confidence of an increase in investments in new buildings. 42 percent of the respondents expect an increase compared to 30 percent in the last quarter. Another area which has seen a remarkable change in this quarter is investment in R&D activities. With an increase of 19 points, 43 percent respondents are anticipating an increase in investment in R&D activities compared to 24 percent in Q2 2016. When it comes to investment in plant and machinery, 46 percent respondents expect a rise.
On the global front, there is a pronounced change in mood over the last quarter in the UK (-19pp), Ireland (-24pp), France (-18pp) and Spain (-19pp), with the EU and the Eurozone both suffering a 7pp decline. In the US, optimism dropped by 1pp, contributing to a significant 11pp fall over the year, while Mexico took a 22pp tumble in the last three months alone. Globally, business optimism stands at net 33 percent, rising 1pp from the previous quarter but falling 11pp over the year.
Ed Nusbaum, Global CEO of Grant Thornton, said:
“Political events such as Brexit and the US presidential election understandably rattle the global economy and test the resilience and elasticity of businesses worldwide. In general, businesses do not like uncertainty, and that is what is happening.”
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