India slips to 3rd position on the business optimism index: Grant Thornton survey

Delays in key reforms like GST,  non-resolution of tax disputes,  banking issues due to NPAs resulting in weak outlook for banks and need for significant recapitalisation of public sector banks are some of the biggest concerns of Corporate India that have collectively impacted the business confidence affecting the overall business optimism in the country.

After being on top globally, on the scale of business optimism for last two consecutive quarters, India ranked third during the April-June quarter of 2016, according to the latest Grant Thornton International Business Report (IBR). The scale and the report, are prepared basis the results of a quarterly conducted global business survey of 2,500 businesses across 36 economies.

According to the report, India continues to top the chart on expectations of increasing revenue. 96 percent of the respondents within the survey have voted in favour of increasing revenue. The survey report indicates increased expectations for an upsurge in selling prices in India. On the parameter, India ranked 2^nd in April-June quarter as against 3^rd position in January-March quarter of 2016.

However, growth in employment expectations dropped to second position during this period from top rank in the previous quarter (Q1 2016). The optimism further slipped to fourth position in profitability expectations from third.

While the business confidence in India has plummeted, there is a tremendous rise in the optimism for an increase in exports. According to the survey report, 35 percent of the respondents expect a rise in exports compared to 13 percent in the last quarter. However, the country continues to rank number 2 in citing regulations and red tape as a constraint on growth for two consecutive quarters.

“This is a clear signal that while there is optimism in the market and great business opportunity in India, the issue that is bothering investors is the slow progress on key reforms, simplification of tedious government processes and regulatory uncertainties which is impacting India’s ranking.  The passing of GST bill which we hope will happen in the current parliament session should reverse this trend,” said Harish HV, Partner – India Leadership team, Grant Thornton India LLP.

The IBR shows a decline in the optimism in India as far as investments in new buildings are concerned. Only 30 percent of the respondents expect an increase compared to 51 percent in the last quarter where India topped the chart. When it comes to investment in plant and machinery, only 41 percent respondents expect a rise. R&D continues to be an area of concern with only 24 percent expecting an increase in investment in R&D activities compared to 31 percent in Q1 2016.

On the global front, there is a rise in the proportion of businesses worldwide expecting increased revenues over the coming 12 months. By contrast, growth in global export expectations continues to be slow, indicating that revenues are dependent on domestic consumer spending power. This power is now under threat from increased political instability, recovering oil prices and reduced plans to offer pay increases.

Francesca Lagerberg, Global Leader at Grant Thornton, said:

“Across many regions there appears to be a disconnect between revenue expectations and export plans. Export expectations continue to disappoint, especially in Europe and the Americas, so it would seem that many companies are excessively dependent on domestic consumer spending for growth.”

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