Concerns over the impact of goods and services tax (GST) have hurt business confidence in India even as the effect of demonetisation abates, a Dun & Bradstreet survey found.
According to the survey conducted in June, the Composite Business Optimism Index for the three months ending September 2017 declined by 13.3% from a year ago, D&B said in a statement.
Four out of the six D&B optimism indices—namely volume of sales, net profits, new orders and selling prices—have declined as compared to same period previous year.
“Whilst bigger companies are largely geared up for the (GST) transition, the same cannot be said for the small and medium enterprises (SMEs) who could see their costs escalate to ensure compliance. These issues during the survey period could have played a role in dampening business confidence. Further, concerns related to future demand conditions and weak new investment demand could have also operated as binding constraints on business sentiment," Manish Sinha, managing director-India, Dun & Bradstreet said in statement.
GST is expected to bring some disruption in production cycle and revenue loss in the short run because of the transition. Around 55% of the respondents expect an increase in net profits in the September quarter, compared to around 71% a year before, a decrease of 16 percentage points. The services sector is the most optimistic, while the consumer durables sector is the least optimistic on this parameter.
“Weak demand conditions continue to weigh on business confidence. Demand indicators such as new orders appear tepid and this has triggered a sharp fall in optimism with regard to net sales for Q3 2017. Investment growth remains a drag with private sector spending, in particular, moderating for the past three years. Weak earnings and excess capacity have held back capex spending," the survey said.
It added that other threats prevail in terms of high stock of non-performing assets in banking sector and high leverage of some companies. “This twin-balance sheet problem has been curbing credit growth," it observed.
The survey is conducted on a sample of companies selected randomly from D&B’s commercial credit file. The sample includes companies from several sectors including basic goods, capital goods, intermediate goods, consumer durables, consumer non-durables and service sectors.