Confidence of the Indian business community is the highest, at 86 percent, in the second quarter of 2014, which happens to be the highest in the world and well above the global average of 46 percent.
However, it is marginally lower than 89 percent in January-March, according to a new survey by Grant Thornton. The International Business Report (IBR) has been prepared by conducting 2,500 interviews across 34 economies.
“The election of a reform-oriented economic development focussed government, led by Narendra Modi, has dramatically improved business sentiment… Businessmen expect the economy to pick up and achieve high growth rates,” said Harish HV, Partner, Grant Thornton India LLP, in a press release.
The marginal decline over the previous quarter reflects the anxiety among businesses over the “bitter pill” that the new government is likely to prescribe in its upcoming Budget.
Modi came to power on promises to fix the economy, which grew at a decade low pace last year. The stock market has been on a roll after the BJP-led National Democratic Alliance witnessed a landslide victory in the general elections. Economists have, however, warned that hard decisions are necessary for long-term economic growth.
According to the report, 93 percent of Indian businesses expect to see their revenues growing and 90 percent hope to see their profits jumping over the next 12 months. Around 76 percent of dynamic businesses expect to hire more workers in the next 12 months. Over the next one year, 37 percent of Indian businesses hope to invest in new buildings while 41 percent plan to invest in plant and machinery.
The new government has articulated its reform-oriented agenda to kick-start the economy and to attract foreign investment. It has also promised inclusive growth, regulatory reforms and a transparent policy environment that would enhance 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, the report has said.
Now, the bad news.
Despite the optimism, there are certain constraints that make it difficult for businesses to operate. As many as 62 percent of the businesses have highlighted shortage of finance as a constraint, while 71 percent feel that regulations and red tape are major challenges.
While 59 percent businesses have reported lack of skilled workers as a challenge, 52 percent 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%), improve sales force effectiveness (51%), incentivise productivity improvements (45%) and develop and/or launch a new product or service (32%).
“In its first Budget that is due to be tabled in Parliament in July, there is a lot of expectation that the government is will announce a slew of business-friendly policies and regulatory reforms which would drive investment back into infrastructure and manufacturing”, said Harish.
High food inflation and the fear of sub-normal monsoon is keeping the new government on tenterhooks, he said.