Business confidence dips 13% over GST confusion

The uncertainty surrounding the potential impact of the goods and services tax (GST) has led to a sharp drop in India Inc’s business optimism for the third quarter of this calendar year.

The Dun & Bradstreet’s composite business optimism index fell 13.3 per cent to 72.1 for Q3 2017 as compared to the same period last year with optimism on net sales and net profits taking a major hit.

According to the survey, only 63 per cent of the respondents expect the volumes of sale to increase in July-September period as compared to 78 per cent in Q3 2016 while only 55 per cent of them expect an increase in net profits during the current quarter as against 71 per cent during the same period last year.

While the after-effects of demonetisation on consumer spending and normal business operations have started abating, the GST rollout has got companies worried about financial implications of the new tax regime.

Inventory pile-up and an increase in inflation in select service sector categories could be the immediate fall out due to the implementation of GST. This is already evident in the survey results that show 31 per cent of the respondents expecting their inventory level to increase during Q3 2017 as compared to 22 per cent in Q3 2016.

The survey also noted that weak demand conditions continue to weigh on business confidence. Demand indicators such as new orders appear tepid and this has triggered a sharp fall in optimism with regard to net sales for Q3 2017.

“While the GST rollout has been rightly lauded for the significant benefits in streamlined taxation, realising the benefits will need India Inc to execute well. While bigger companies are largely geared up for the transition, the same cannot be said for the SMEs who could see their costs escalate to ensure compliance,” said Manish Sinha, managing director, India, D&B.