08 November 2017 

The results of Grant Thornton’s International Business Report (IBR), a quarterly global business survey, reveal that business optimism in India has slipped from 2nd position in the last quarter to 7th position in the 3rd quarter of 2017.

The scale and the report are prepared based on the results of a quarterly global business survey of 2,500 businesses in 37 economies conducted in September before the announcements of the big reforms by the Government on Bank recapitalization, infrastructure investments particularly in roads, aggressive actions on insolvency and bankruptcy.

The survey further states that Indian businesses have expressed low confidence over the revenue expectations in the next twelve months. From 1st position (78 per cent) in the last quarter, the ranking has dropped to 8th position with 75 per cent respondents hoping for an increase in the revenue. India also witnesses a drastic fall in confidence for profitability with 54 per cent showing optimism as against 69 per cent in the last quarter.

Other parameters like expectation for an increase in selling prices and exports have also suffered a slight fall in optimism in this quarter. From 4th position in the previous quarter, the confidence for an increase in selling prices has dropped to 5th position with 47 per cent businesses showing optimism. Similarly, optimism for an increase in exports has dropped to 8th position from 6th with only 31 per cent respondents expressing confidence about an upsurge in exports.

“There was clearly signs of lag in the economy which caused the drop in ratings. However, the Government actions and reforms coupled with the significant jump in Ease of Doing Business Rankings should bring back optimism in Indian Business in the next few quarters,” said Harish HV, Partner – India leadership team, Grant Thornton India LLP.

India remains optimistic about increase in employment as 54 per cent respondents expressed the need to increase hiring in the next 12 months, a three-point rise from the last quarter. Another area where the optimism has remained intact is investment in plant and machinery and Research & Development (R&D). India has taken the 11th spot from 15th in the previous quarter in displaying confidence in higher investment in plant & machinery. When it comes to investment in R&D, India takes the 4th position as against 5th in the last quarter with 44 per cent respondents expecting an increase in R&D activities.

According to IBR, India tops the chart in citing regulations and red tape and lack of ICT infrastructure as the biggest growth constraints with 69 per cent and 46 per cent voting for it respectively. Indian businesses also identified shortage of finance and lack of skilled workforce as pain points of India Inc. taking the 2nd and the 3rd spot respectively.

Globally, the overall position for business optimism remains relatively high at +49 per cent.  This is down 2pp on Q2, and follows five consecutive quarterly increases in business sentiment.

Francesca Lagerberg, Global Leader at Grant Thornton, said:

“Profits are under pressure. Wage bills are firmly on the rise as businesses try to tackle the skilled worker shortage.  It’s an issue that is becoming acute. In all the years of surveying businesses, this is the highest level of concern we have seen about the potentially negative impact of a lack of skilled staff on growth prospects. Today, companies have to compete for skills – both to retain the ones they have and recruit the ones they need. As a result, we are seeing businesses plan to boost pay. This reflects what we are hearing from companies around the world, and firms paying staff more is almost certainly hitting the outlook on profits. 9 in 10 of the world’s largest economies have reduced their profit outlook for the coming year. The impact will be significant and is a major threat to long term growth. Diverting profits to pay staff is understandable. But it will limit firms’ ability to invest in long-term growth through R&D or plant and machinery. Furthermore, if profits are depressed, businesses may look to increase the price of their goods and services, which creates inflationary pressure. As businesses plan ahead, it will be critical to ensure a balance so that other investments are not abandoned altogether.”

(Editorial Note- Article got amended post Publication)

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