New Delhi, 9 February 2015: Results of a quick survey conducted by FICCI amongst members of its National Executive Committee show that members of India Inc. are sensing an improvement in the economic situation at the ground level and this is feeding into their business and investment plans.
The survey drew response from about 78 CEOs from across sectors and findings show that the steps being taken up by the government after assuming office last year are now starting to yield results on the ground. It may however be added that while a turnaround in the economy is visible, the pace of change is slow and there is an imperative need to continue with the reforms process so that the improving economic situation gathers strength translating into a sustainable increase in consumption and investment demand. In this context, the forthcoming Union Budget 2015-16 is being seen with a lot of expectations and CEOs expect the government to lay out more measures to boost economic growth.
According to this latest FICCI survey, nearly 63 per cent of the CEOs feel that the current overall economic situation has seen a marginal improvement vis-à-vis the last six months. Another 32 per cent of the CEOs feel that there has been a substantial improvement in the economic situation over the last six months. Further, when asked about their outlook with regard to business and investments over the next six months, nearly 60 per cent of the CEOs reported that they expect a moderate improvement while another 32 per cent of the CEOs said that they foresee a substantial improvement in the same. These findings are an indication that the building blocks for growth being put in place by the government in terms of broad policy and procedural changes are beginning to take effect.
In terms of ease of doing business and cost of doing business, India has consistently ranked low on global listings. However, the government has indicated its desire to break from the past and usher in a series of measures to change this scenario. The changes introduced in labour laws and in the mechanisms for applying for and grant of environmental clearances are two examples of how government is moving forward to create an enabling business environment in the country. Further, measures such as the issuance of ordinance on matters related to coal mining, land acquisition and insurance also underline the government’s commitment to address some of the long standing issues confronting industry.
As the environment for doing business in India improves, it is equally important to examine issues related to financing investments and growth. In this context, in the present survey CEOs were asked to comment on how banks were responding to their applications for loans. The feedback received through the survey indicates that there has been improvement in recent months with nearly 53 per cent of the participants indicating that banks have become more accommodative in their consideration of loan applications by the business community. While this majority view is encouraging, it is important to note that nearly 47 per cent of the CEOs still maintain the view that banks need to do more to support productive investments and growth. It is hoped that with the RBI increasingly indicating to the banking sector to support such productive activities in the economy, a more considered view will be taken by the bankers in the months ahead.
Besides availability of finance from banks, CEOs were also asked to share their views on rates of interest that would help them fructify their investment plans. Nearly 75 per cent of the participants in the FICCI survey reported that cost of capital should be in the range of 8 to 10 per cent for them to competitively drive investments. Currently the rates being charged by banks are generally higher and this acts as a dampener for fresh investments. It is hoped that with the RBI indicating a downward swing in the policy rates – a 25 basis points cut in repo rate was affected in January 2015 – lending rates by banks will come down as the transmission effect takes place. CEOs are also hoping that following the presentation of Union Budget for 2015-16, RBI will resume the rate cut cycle.
Further, the forthcoming Union Budget is being viewed with a lot of expectations. In the current survey, CEOs were asked to list out their priorities / focus areas for the Union Budget. Responses show that industry is looking at a clear focus on infrastructure development, skill development, promotion of MSMEs and healthcare & education sectors in the ensuing budget.
With regard to proposals related to taxation (both direct and indirect), an overwhelming majority feels that passage of the GST Bill in the Budget Session of the Parliament should be a priority. Additionally, companies are looking at rationalisation of the Minimum Alternate Tax (MAT) rate, enhancement of the basic exemption limit for taxing individuals and more tax incentives for encouraging R&D and innovation.