Despite fall in global business confidence, investment appetite grows in India

India’s financial capital, Mumbai. Photo credit: Pixabay.

Businesses around the world are pessimistic about their prospects this year and cutting back on capital and hiring expenditure, finds the latest Global Economic Conditions Survey. It’s based on responses of over 2,500 finance professionals around the world, including 200 CFOs, gathered in December.

Bucking this global trend is South Asia, which is mainly India. The survey shows that South Asia has the fewest number of companies cutting back on capital expenditure in response to the economic gloom around the world. And, next to North America, it has the highest number of companies increasing capital expenditure. It similarly shows a rise on the hiring index, contrary to businesses in other regions, including the Asia-Pacific, whose biggest concern is falling income.

Confidence down but investment picking up

Investment appetite strong in South Asia

The World Bank estimates that South Asia’s largest economy, India, will grow by 7.3% in FY2015-16, which would make it the world’s fastest-growing major economy.

Relatively, India’s going through a good spell, points out the report. It’s a big net importer of oil and has benefited immensely from the drop in oil prices over the past year, which made a big dent in the government’s fuel subsidy bill. The World Bank estimates that India will grow by 7.3% in financial year 2015-16 (April 1, 2015 to March 31, 2016), making it the world’s fastest-growing major economy.

Paradoxically, despite the positives on the capital expenditure and hiring indexes, business confidence continues to fall in South Asia, in line with the rest of the world. “One explanation for the dip in business confidence may be that expectations for Modi’s government were unrealistic. Nevertheless, efforts to get investment projects off the ground are slowly bearing fruit,” says the survey report from the Association of Chartered Certified Accountants (ACCA).

This will give heart to businesses in India targeting the domestic market as well as those hoping to raise capital this year. The mood in startup circles lately is that the honeymoon is over and hard times are ahead. But it appears that the scene in India is far less gloomy compared to elsewhere in the world.

Another country in the region which has been a major beneficiary of the fall in oil prices is Pakistan. Not surprisingly, 25 percent of the firms surveyed in Pakistan said they were planning to increase their capital expenditure. Only 14 percent of firms surveyed globally expressed similar confidence.

“There is a troubling long list of risks developing for the majority of global businesses,” says Faye Chua, head of business insight at ACCA. “Many are already, unsurprisingly, reacting to falling opportunities by scaling back on capital and employment investments, which will, in turn, contribute to the further slowdown of the global economy. This, combined with the fact that many governments are having to cut back on spending means there are grounds for concern.”

Businesses are jittery over the health of China’s economy and how that will impact the world. That neighboring India is maintaining its momentum will come as some relief.