New Delhi, 19th Aug, 2015: India’s business community is feeling buoyant, according to the latest global survey of finance professionals.
The economy is benefitting from low oil prices – being highly reliant on fuel imports -and have seen balance of payments improvements in recent months.
Finance professionals responding to the Global Economic Conditions Survey (GECS)organised by ACCA (the Association of Chartered Certified Accountants and IMA (the Institute of Management Accountants) expect greater investment in infrastructure under Prime Minister Modi’s reform programme, and India is set to grow at a faster rate than that of China over the coming five years—edging above 7% growth just as China slips below it.
However, despite the growing confidence, the survey showed that there is still an unwillingness among businesses to invest in either capital or human resources. Mohammed Sajid Khan,Head of International Development, said: “Indian finance professionals are cautiously optimistic about the impact of the Prime Minister’s reforms, and will look forward to seeing the impact of the measures to cut red tape and speed up land appropriation for public works. Our survey suggests it is possible that, given there is an expectation of higher government spending, that businesses are waiting for the public sector to invest more boldly before taking on new risks themselves.”
Meanwhile, the global economy is facing a period of volatility and major readjustments, according to the survey.
The second quarter of 2015 saw an abortive rise in oil prices, several expected and unexpected rate cuts by central banks, a rebound in Western consumer sentiment and a stock market crash in China.
These events led to business confidence levelling off in the second quarter of 2015 following six months of improvement, according to the latest GECS).
The slowing in confidence can be traced to the world’s largest economies: many businesses in the US were affected by severe winter storms, port disruptions and a strong dollar, while those in China faced a cooling economy in the first quarter and over-heating stock markets in the second.
Of these factors, China’s economic slowdown and accompanying shift from investment- to consumption-driven growth will have the greatest long-term impact on global trade patterns, hitting the world’s major commodity exporters particularly hard.
Nearly half of those surveyed expected to see government spending increase over the next five years, while 35% expected a decrease. The survey also shows that firms remain quick to cut staff when faced with uncertainty. In the past quarter, 41% of businesses have cut staff or ceased recruitment - nearly twice the number which have increased staff levels over the same period.
The major global concern was a rise in costs, with 46% of respondent worried about the impact, while foreign exchange movements were cited as a problem by more than a third of larger businesses which have cross-border supply chains.
But there was significant regional variation in the relationship between confidence in the economic outlook and willingness to take on new staff. In North America, the number of firms creating new jobs was actually greater than those expressing greater confidence in the economy. But in South Asia and Africa, by contrast, relatively high confidence had yet to translate into new investments in people. This may reflect a degree of uncertainty about the sustainability of business growth in regions that still face numerous internal challenges and external vulnerabilities.
Adding further, Mohammed Sajid Khan, Head of International Development, said: “India is at a very interesting juncture currently. The survey reflects a positive vigour in the Indian economy due to recent reforms and in terms of the overall business sentiment, in addition to a few external factors working in India’s favour. If this sustains, the coming few months can mark a turning point for India and can strengthen its position in the overall global economy.”
Since the global financial crisis of 2008, China has been viewed as the engine of the world’s economy. Yet with more sturdy fundamentals re-emerging in the US and Western Europe, the role of Western consumers in driving demand is coming back to the fore. Looking ahead to the next quarter, overall confidence is set to rise in the wake of stronger economic reports coming out of the US and China. There are a critical number of factors affecting this. It is likely that the Federal Reserve will raise US interest rates before the quarter is out, which could intensify current currency trends though much of the impact would already have been priced in.