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 (June-September quarter) of 2017. The fall in rank clearly shows clear signs of lag in the economy. The index was released as part of Grant Thornton’s International Business Report (IBR). The IBR provides insight into the views and expectations of more than 10,000 businesses per year across 36 economies.
In September-November quarter, the index was topped by Indonesia, followed by Finland (2nd), Netherlands (3rd), Philippines (4th), Austria (5th) and Nigeria (6th). Globally, the overall position of business optimism remains relatively high at 49% in September quarter. It was down by 2 pps in June quarter and follows five consecutive quarterly increases in business sentiment.
Indian businesses have expressed low confidence for profitability with 54% showing optimism as against 69% in the last quarter. Moreover, other parameters like expectations of an increase in selling prices and exports also have suffered fall in optimism which shows clear signs of lag in the economy which caused the drop in ratings.
“There was clear 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.
However, Government actions and reforms coupled with a significant jump in Ease of Doing Business Rankings may bring back optimism in Indian Business in next few quarters. Optimism remained intact in areas of investment in plant and machinery and Research & Development (R&D).
According to Francesca Lagerberg, Global Leader at Grant Thornton,
“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.”
Indian businesses also identified a shortage of finance and lack of skilled workforce as reasons for lack of optimism. Indian businesses are still optimistic about an increase in employment as 54% respondents expressed need to increase hiring in next 1 year, three-point rise from June quarter.