Business confidence in India stood at 86 per cent in the second quarter of 2014 ahead of the global average of 46 per cent, but marginally lower than 89 per cent in the previous quarter i.e. Q1 of 2014, according to the latest research report from Grant Thornton International Business Report (IBR)
“India’s top ranking on business confidence in the second quarter is the result of a landslide victory of the business-friendly Government led by Narendra Modi, who has vowed to boost growth. However, the marginal decline over the previous quarter reflects the anxiety among businesses over the ‘bitter pill’ that the new Government is likely to deliver in its upcoming Budget with an eye on long-term economic growth," states the report.
The IBR data is drawn from 2,500 interviews in 34 economies conducted in May 2014.
“The new Government has articulated its reform-oriented agenda to kick-start the economy and attract foreign investment. It has also promised inclusive growth, regulatory reforms and a transparent policy environment that would enhance the ease of doing business in India. The Government is likely to make the tax regime rational, simple, non-adversarial and conducive to investment, enterprise and growth,” noted the report.
This finds reflection in the IBR data, which shows that 93 per cent of Indian businesses expect to see revenues grow over the next 12 months, while 90 per cent hope to see their profits jump in the next one year. 76 per cent of dynamic businesses expect to hire more workers in the next 12 months. Over the next one year, 37 per cent of Indian businesses hope to invest in new buildings, while 41 per cent plan to invest in plant and machinery.
Besides the optimism, the report also highlights certain constraints that make it difficult for businesses to operate. For instance 62 per cent of businesses have highlighted shortage of finance as a constraint, while 71 per cent feel that regulations and red tape are major challenges. While 59 per cent of businesses have reported lack of skilled workers as a challenge, 52 per cent of businesses face difficulties relating to transport infrastructure. Other challenges faced by Indian businesses are linked to ICT infrastructure, rising energy costs, and exchange rate fluctuations.
The growth initiatives that businesses are most likely to implement in the next 12 months include more investment in marketing (54 per cent), improved sales force effectiveness (51 per cent), incentivising productivity improvements (45 per cent) and developing and/or launching a new product or service (32 per cent).
Harish H V, Partner, Grant Thornton India LLP said: “The election of a reform-oriented economic development focussed Government led by Modi has dramatically improved business sentiment, which is reflected in the IBR data. Businessmen expect the economy to pick up and achieve high growth rates. In its first Budget due to be tabled in Parliament in July, the Government is expected to announce a slew of business-friendly policies and regulatory reforms which would drive investment back into infrastructure and manufacturing.”
“However, high food inflation and the fear of a sub-normal monsoon has the new Government on tenterhooks. With an eye on long-term economic stability, Prime Minister Modi has also indicated that some much-needed hard decisions will have to be taken to bring India out of the cycle of slow economic growth, and it has started with the increase in railway fares,” he added.