India business optimism soars but skills shortage threatens growth

Tuesday, April 12, 2011 | Posted by: Grant Thornton
Categories: India, India Watch Issue 12 | Tags: business, India, investment, economy, Grant Thornton, global, China, growth, India Watch, Grant Thornton India, international, emerging markets, IBR, economic, Indian Economy, inflation, International business report, IT, India Economy, BRIC

According to the latest results of the Grant Thornton International Business Report* (IBR) over Q4 2010 and Q1 2011 92% of Indian senior executives surveyed said they had an optimistic outlook for their country’s economy over the next 12 months, the second highest result globally, and an 8% rise from 12 months ago. Only Chile was more optimistic at 95%.

Vishesh C Chandiok, National Managing Partner, Grant Thornton India said “The results reflect the overall confidence amongst Indian business owners that the Indian economy will remain buoyant over the coming year. This optimism is evident in the marketplace as companies utilising the increased availability of capital compared to 2009-10, and are undertaking substantial organic and inorganic investments to build scale within their businesses. Post-recession businesses have become leaner and more cost effective which has enabled them to lower prices while still securing increased revenues and, more importantly, profits. Our findings suggest that profitability levels are expected to be the strongest in India over the coming year (+84%) which is far stronger than the global average (+40%) and other key markets such as Brazil (71%), China (+51%) and the US (+44%).”

No doubt however the ongoing political turmoil across North Africa and the Middle East could have a real impact on the outlook of businesses in a number of economies. Big oil importing countries, and many businesses within them, will watch on with some discomfort should unrest in these regions continue to spread and push up oil prices further.

We would expect however the gap in optimism to continue to close as emerging markets continue to face constraints on growth. Over half of privately owned businesses in India (51%) stress that a lack of availability of skilled labour will constrain their ability to grow this year. This is a 30 percentage point upswing on 2010.

As a result of this increased confidence of businesses the ensuing clamor for skilled people will cause wages to rise, this in turn will inflate selling prices and will narrow the country’s competitive advantage.

In the short term this constraint might see a relaxing of policies on immigration to increase the import of the necessary skills and observers will also be keen to look to see the inflationary pressure it will create. In the long term however governments will need to address how they educate and skill their people appropriately in order to fuel economic growth.

Even so, despite the lack of skilled labour on balance 64% India businesses expected an increase in employee numbers over the next 12 months – the highest out of any country surveyed.

When it comes to women in business however, the research reveals that only 9% of senior management positions are held by women, this represents a 9% decrease from 2009 figures. Only the United Arab Emirates (8%) and Japan (8%) are below this. In comparison, women currently hold 20% of senior management positions globally, down from 24% in 2009, and up just 1% from 2000.

Complete the survey to compare your results against over 7,400 privately held businesses from around the world, including entrepreneurs, family businesses and non-listed entities.

Other articles in this issue of India Watch include:

Grant Thornton Index shows strength against other indices

New M&A wave witnessed by India Inc.

Sustained growth expected for India economy

India Union Budget 2010-11: A reflection

* The Grant Thornton International Business Report (IBR) is a quarterly survey of the views of senior executives in privately held businesses (PHBs) all over the world. Launched in 1992 in nine European countries the report now surveys over 11,000 PHBs in 39 economies providing insights on the economic and commercial issues affecting a sector often described as the ‘engine’ of the world’s economy.