Over the past few years, corporate India has been running an obstacle course. First, it had to deal with demonetisation - that bolt-from-the-blue. Then came the disruption from the implementation of the Goods and Services Tax (GST). And just when these upheavals seemed done with, a perceptible growth slowdown has now gripped the domestic economy. It doesn’t help that the global economy is also in trouble with trade wars and geopolitical tensions.

That India Inc. is in the midst of challenging times is apparent from the bottom-line of the BSE 500 companies. In FY2019, the aggregate profit of these companies grew just 1.7 per cent y-o-y. This was on top of a 2 per cent decline in profit in FY2018. Even this understates the extent of the problem.

Excluding banks, many of which took a huge hit due to bad loans recognition in FY2018, India Inc.’s profit in FY2019 fell one per cent as against growth of 14 per cent in FY2018. The poor show in FY2019 was more pronounced in the last two quarters.

Gruelling time

The pain is visible across many sectors. The auto industry, considered a bellwether of the economy, is passing through a particularly gruelling time with volumes shrinking for many months now. This showed in the 14 per cent y-o-y fall in the profits of these companies in the March 2019 quarter. Other consumption oriented sectors such as FMCG and consumer durables have also been feeling the heat in recent times. A host of factors –weak economic growth, low disposable incomes due to rural stress, high interest rates, rising fuel and insurance costs – have contributed to the consumption slowdown.

The financiers of the economy – banks and NBFCs – are also in a funk. Several banks continue to grapple with bad loan problems, though there has been some easing on this front over the last year. Meanwhile, many NBFCs are desperately fighting a funding squeeze crisis, the cascade effect of the IL&FS payment defaults that began last year. The aggregate profit of NBFCs in the BSE 500 grew an anaemic 6 per cent y-o-y in the March 2019 quarter.

The NBFC troubles have also spelt bad news for many other players that depend on it for funding. Prominent among these is the realty sector that was already struggling with demand slowdown. The profits of realty companies crashed about 46 per cent y-o-y in the recent March quarter.

Funding constraints

Even sectors such as infrastructure and roads that were doing well until 2018 seem to have hit speed-bumps due to funding constraints and land acquisition problems; the profit growth of these companies in the March 2019 quarter was about 6 per cent y-o-y, much slower than in earlier periods.

Besides, several companies in the manufacturing sector are facing pressure due to subdued investments over the past few years and demand slowdown. Increase in raw material costs including that of crude oil remain a risk for these entities. Cut-throat competition has also taken a toll on many telecom and airline companies. In contrast, the export-oriented software firms have managed to put up a good show in FY 2019. But the global economic slowdown, trade wars and increased protectionism pose a threat to export oriented sectors too. In short, a large part of India Inc. is on the back-foot.

Given this not-so-sanguine background, corporate India was counting on the Budget to provide it relief.

The Budget has announced some steps to break the NBFC liquidity logjam and also reduced the corporate tax rate for companies with turnover up to ₹400 crore to 25 per cent.

The proposal to streamline multiple labour laws into a set of four labour codes is also welcome. Steps to ease land acquisition would have helped.

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