While the GDP numbers for the September quarter have beaten all expectations, KPMG’s recently released Global Business Outlook Survey for October shows rather muted optimism among Indian businesses.
Considering high optimism in Russia, China and Brazil, the survey says, “There are marked disparities between the individual BRIC countries. Brazil is expected to post the fastest growth of output (and to be the strongest performer of all the countries included in the global outlook survey), while robust rates of expansion are also forecast for Russia and China. On the other hand, India is set to significantly underperform its BRIC peers. Although still positive, confidence in the Indian service sector has actually slipped since the previous outlook survey (the only country where this is the case).”
In fact, as the chart shows, business sentiment in India both in manufacturing and services seems far worse than the world average.
In services, a net 24.7% of respondents expect an increase in business activity in the next 12 months, down from 31.1% in April. Optimism is higher in manufacturing, with a net 30.3% of respondents expecting business activity to pick up in the next 12 months. But survey results indicate a large number of executives do not expect to pass on rising input costs.
The outlook for capital expenditure is also muted, with a net 13.8% of Indian executives in manufacturing saying that they would go in for capex, compared with 10.3% in July. Contrast this with China, where a net 34.3% expect higher capex in manufacturing in the next 12 months.
The pessimism spills over into employment numbers, with only a net 11.9% of respondents in Indian manufacturing saying they would increase staffing in the next 12 months. The percentage for services is higher at 16.9%. But again, contrast these with China’s 27.7% for manufacturing and 30.7% for services.
Of course, these are just opinions about the business outlook and could turn out to be wrong.
The pessimism is also in marked contrast to the upbeat second quarter GDP numbers and the upward revision of growth forecasts. In fact, one reason for the optimism in the US and the European Union is because their economies have been beaten down so badly.
Nevertheless, as “animal spirits” of entrepreneurs a requirement for a swift recovery, excessive caution may indeed lead to lower growth.