More than half (62%) of India's Chief Financial Officers express optimism about the future state of the Indian economy over longer term, finds a survey conducted by Deloitte Touche Tohmatsu India Pvt. Ltd.
However, the CFOs continue to remain uncertain about the short term impact of the government’s recent policy reforms such as increased incentives for investors (in sectors such as insurance, pension, multi-brand retail), reducing subsidies (oil), and the proposed disinvestment of public sector units (energy, natural gas).
Fifty-seven percent of the CFOs are neutral (neither optimistic nor pessimistic) about the current economic condition of India, whereas only 18% are optimistic.
“The optimism and sentiments expressed by the CFOs indicate that they are exhibiting caution regarding the present state of the Indian economy," says Sanjoy Sen, Senior Director, Deloitte in India.
Sanjay notes that the apprehension of CFOs arises from the recent slowdown of GDP growth, consistently high rates of inflation and a widening fiscal deficit, key factors that have far-reaching implications on investor confidence.
"Although the CFOs are concerned with the current economic conditions, their level of optimism is significantly higher for the future,” adds Sanjay.
Regulations to encourage foreign investors, subsidy cuts to reduce the fiscal deficits, and moderate interest rate cuts to fuel the economy, are viewed as key drivers for a positive outlook.
The CFOs consider recent regulations, that encourage Foreign Direct Investment (FDI) inflow, tax reforms (such as proposed General Anti Avoidance Rule (GAAR) amendments), and reduction of fuel/non-fuel subsidies as key positive enablers that enforce their future optimism. However, it needs to be seen how well the government maintains this momentum with adequate policy interventions where necessary, and, consequently, how well the economy performs in the coming months.
Over 45% of the CFOs continue to express concern over changing cost structures, inflationary pricing trends, industry regulations, and unavailability of adequate skilled resources as key economic concerns. Although the CFOs still look forward to government intervention to address the current industry concerns, they also consider other factors (skill set unavailability, cost structures and pricing trends) as equally critical. Industries such as Banking, Financial Services and Insurance, Energy and Resources, Consumer Business, Life-Sciences & Health Care, Technology, Media and Telecommunication, and Manufacturing sectors continue to be affected by the lack of capable and skilled labor force.
Over half of the CFOs indicated revenue sustenance, cost reduction and maintenance of talent pool as key organisation-specific challenges. Of these, revenue growth/preservation continues to be major concerns (similar to the 2012 survey) due to low consumer demand (domestic as well as international).
At the same time, profitability and margin maintenance remain key challenges due to the elevated input costs, asset/working capital management challenges, complex corporate tax environment, increased regulatory compliances, and liquidity maintenance (with adequate financing). Moreover, talent related areas such as availability of specialised or skilled workforce, their development and associated cost remain key areas of concern for the CFOs.
CFOs are faced with the continued need to grow/preserve revenue, implement cost containment initiatives, generate value for shareholders, make prudent use of capital, and maintain investment-grade value. In addition, CFOs may also have to continuously engage in organisational streamlining activities, such as increasing operational scalability, consolidating their businesses and improving access to resources and capabilities to improve their working capital usage efficiency.