World Economy

Indian Gov’t Policy a Key Threat to Business Confidence

Indian Gov’t Policy a Key Threat to Business ConfidenceIndian Gov’t Policy a Key Threat to Business Confidence

Indian private sector firms are feeling less upbeat in February compared to October, according to IHS Markit’s India Business Outlook survey. Business activity, new business, profitability and employment are all forecast to grow at a slower rate over the next one year. IHS Markit brings out the purchasing managers indices across countries every month.

“It’s worth noting that we have a rather long stretch to cover to bridge the gap from the high levels seen in 2012. February performance is weaker than the average of BRICS countries and the third lowest globally. BRICS is an acronym for Brazil, Russia, India, China and South Africa, PTI reported.

Also, government policy has been cited as a risk to the business outlook in the survey. “A key threat to the 12-month outlook is government policies and decisions,” says IHS Markit. The worry here is about the potential for new unexpected policies that can be announced and their impact on business operations.

According to Dhananjay Sinha, head of research, economist and strategist at Emkay Global Financial Services Ltd., “Considering that this is an election-heavy year (with many state elections) and we are also in the run-up to the general elections, it is plausible that the government may resort to some populist policy measures.”

Additionally, the outlook on profit isn’t too rosy. According to IHS Markit, companies expect faster growth in business revenues in the next 12 months, but optimism related to expected gains in profits eased to a survey-record low.

“Projections of inflationary pressures alongside limitations in firms’ pricing power are anticipated to translate into restricted gains in profits in the year ahead,” said Aashna Dodhia, an economist at IHS Markit, commenting on the survey data.

“Moreover, working capital issues following the goods and services tax implementation are yet to be resolved,” says Sinha of Emkay Global, adding that these factors can collectively pose a threat to profit margins in the coming quarters.

The Indian economy seems to have finally improving as the latest set of data showed that factories increased production faster while retail inflation softened for the second straight month. The Goldilocks economy, with higher growth and lower inflation, is back both in India and globally, a welcome change from the recent inflation scare.

Add new comment

Read our comment policy before posting your viewpoints