Graphic by Naveen Kumar Saini/Mint
Graphic by Naveen Kumar Saini/Mint

IHS Markit survey finds govt policy a key threat to business confidence

The worry here is about the potential for new unexpected policies that can be announced and its impact on business operations

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.

Have a look at the chart alongside. It shows the percent of companies expecting an increase in business activity the next 12 months minus the percent of those expecting a decline.

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 and the third lowest globally. BRICS is an acronym for Brazil, Russia, India, China and South Africa.

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 GST (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.