Nation's business sentiment crashes to lowest in 3 years

New Delhi: Business sentiment in India fell to its lowest level since June 2016, as companies were worried over a slowing economy, government policies and water shortage, a survey said Monday. According to the IHS Markit India Business Outlook, predictions of softer activity growth underpin the downward revisions of profit outlook, subdued hiring plans and relatively muted capital expenditure.

The net balance of private sector companies foreseeing output growth in the year ahead fell from 18 per cent in February to 15 per cent in June -- this matches the data of June 2016, and also October 2009 when aggregate figures became available.

"June sees business sentiment in India fall to the joint lowest level since comparable data became available in 2009," the survey said.

The survey said water shortages, public policies and weak sales have restricted sentiment in June. Companies are also concerned about potential rupee depreciation pushing prices for imported materials upwards, lack of skilled labour, likely tax hikes, financial difficulties and customers increasingly demanding discounts.

"As seen across emerging markets, business sentiment in India is down in June, dampened by worries about the sustainability of the economic upturn, water shortages, public policies and regulation," said Pollyanna De Lima, principal economist at IHS Markit.

However, hopes of pro-business government policies and a better financial flow continue to underpin optimism towards output and profitability growth in the year ahead. On the employment front, amid predictions of a pick-up in demand, companies plan to expand capacity by hiring additional workers.

"As such, firms plan to expand capacities by taking on additional workers, though sentiment for all measures of expenditure are anaemic," Lima said.

The Global Business Outlook Survey for worldwide manufacturing and services is produced by IHS Markit and is based on a survey of around 12,000 manufacturers and service providers that are asked to give their thoughts on future business conditions.

The report is produced on a tri-annual basis, with data collected in February, June and October. The latest survey was conducted between June 12 and 26.

Last week IHS Markit said in a report that India will this year overtake the UK to become the world's fifth biggest economy, and is poised to surpass Japan to be the third largest in 2025. Following the re-election of the BJP government led by Prime Minister Narendra Modi to a second term of office in May 2019, the Finance Ministry has published an economic roadmap to 2025 in its latest annual Economic Survey.

The key goal is to transform India from a USD 3 trillion economy in 2019 to a USD 5 trillion economy by 2025, lifting India into the ranks of the world's upper-middle-income countries, it said.

"IHS Markit estimates that India will overtake the UK to become the world's fifth largest economy in 2019, and forecasts that Indian GDP will reach USD 5.9 trillion in 2025, surpassing Japanese GDP to make India the world's third-largest economy," the report said.

Also, the size of the Indian consumer market is forecast to increase from USD 1.9 trillion in 2019 to USD 3.6 trillion by 2025.

"As India continues to ascend in the rankings of the world's largest economies, its contribution to global GDP growth momentum will also increase. As the size of its consumer market continues to grow at a rapid pace, India will also play an increasingly important role as one of the Asia-Pacific region's major economic growth engines, helping to drive Asian regional trade and investment flows," IHS said.

But to achieve this, the country's new economic roadmap highlights the importance of creating a virtuous cycle of investment, savings and exports in order to sustain rapid economic growth over the next five years.

The role of investment is seen as a critical enabler for innovation, rapid productivity growth and new technology, helping to boost jobs growth.