India slipped to the third position on the scale of global business optimism, during April-June, after remaining on top globally for the two preceding quarters.
According to the Grant Thornton International Business Report (IBR), companies were concerned about the delays in key reforms like the goods and services tax, non-resolution of tax disputes and the banking sector’s performance.
However, India continues to top the chart on expectations of revenue increases with 96 per cent of the respondents having voted in favour of increasing revenue as prices are seen witnessing an upsurge.
“Growth in employment expectations dropped to the second position during this period from top rank in the previous quarter (Q1 2016). The rank on optimism further slipped to fourth in terms of profitability expectations,” according to the survey of 2,500 businesses across 36 economies.
While the business confidence in India has weakened, there is a rise in optimism on the export front. According to the survey report, 35 per cent of the respondents expect a rise in exports compared with 13 per cent in the previous quarter. Respondents said red tape continued to hamper growth and ranked India as number two on the issue.
“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 are impacting India’s ranking,” said Harish H.V., Partner – India Leadership team, Grant Thornton India LLP.
“The passing of GST bill, which we hope will happen in the current parliament session, should reverse this trend.”
On investments in plant and machinery, only 41 per cent respondents expect an increase. Research and development continue to be an area of concern with only 24 per cent expecting an increase in investment in R&D activities compared to 31 per cent in Q1 2016.
On the global front, there is a rise in the proportion of businesses worldwide expecting increased revenue over the coming 12 months. However, growth in global export expectations continues to be slow, indicating that revenue is dependent on domestic consumer spending power.
Consumer spending is now under threat from increased political instability, recovering oil prices and reduced plans to offer pay increases, according to the report.
Francesca Lagerberg, Global Leader at Grant Thornton, said: “Across many regions, there appears to be a disconnect between revenue expectations and export plans.”