MUMBAI // Companies in India expect economic recovery six months ahead before several recession-racked developed economies. While companies in European countries such as the UK and Spain do not expect significant recovery until October next year, Indian companies expect to see a rebound by March, a Regus Business Tracker survey released last month showed.
Forty-five per cent of Indian companies saw their profits surge last year, the survey said, compared with 40 per cent of overseas companies. And 49 per cent Indian firms reported increased revenues, compared with 46 per cent globally. "This suggests that small businesses will lead the economic recovery, and highlights the importance of government support and growth incentives for a section of the business community that is responsible for around half the nation's turnover," the survey said.
By next year, 85 per cent of small and medium enterprises in India expect revenue to increase, compared with 72 per cent of large companies. Business confidence was also highest in India, followed by Indonesia and Norway, said a quarterly survey conducted between September 28 and October 16 by Neilsen. "Consumer confidence is rising faster in the BRIC countries (Brazil, Russia, India and China) than other markets, driven by increasing job prospects," said Oliver Rust, the managing director of Nielsen Hong Kong.
The global financial slowdown has hurt India's information technology and outsourcing industry, the engine of its economic resurgence, in the past few quarters as customers, mainly across US and Europe, cut technology spending and demand lower rates for products and services. Spending on IT outsourcing worldwide will fall by 6 per cent this year, higher than its earlier prediction of 3.8 per cent, according to Gartner, an IT research and advisory company in the US.
But India continues to remain the world's leading back office. Despite the declines, its outsourcing industry, taking advantage of the needs of many large and medium-sized US and European companies to cut costs quickly, is projected to be worth US$49 billion (Dh179.97bn) this year, says NASSCOM, India's IT watchdog. "The thing it boils down to is the supply of well-trained, educated labour at reasonable prices," said J Brandon Black, the president and chief executive of the Encore Capital Group, which plans to increase its Indian workforce. "This is just too great to ignore."
Hiring the same calibre of worker in the US would require paying much higher wages and health insurance, Mr Black said. In March, JPMorgan Chase announced it would increase its outsourcing to India by 25 per cent this year to nearly $400 million. While western outsourcing firms such as IBM and HP are cutting jobs, India's big players are bullish on recruitments despite the slowdown. In a NASSCOM survey of 375 Indian-listed companies, the number that added employees this year was 30 per cent higher than those that trimmed their workforce.
With the downturn, the revenue growth of Tata Consultancy Services, India's biggest IT services provider, touched $6bn in the fiscal year that ended in March, dipping by 6.8 per cent compared with last year after consistent growth well in excess of 30 per cent in previous years. But despite the downward swing, TCS, which has about 140,000 employees, said it would hire 25,000 more this year, 90 per cent of them from India.
In a bid to lower its reliance on stagnating US and UK markets, the company is trying to penetrate into emerging markets such as Latin America and China, where it feels it has a great opportunity to grow. TCS aims to make the $10bn revenue mark in the years to come. "India is cheaper, there is no doubt, but price is not the only reason that customers choose it," said Pradipta Bagchi, the head of global communications at TCS.
"Customers are looking for integrated solutions such as IT, infrastructure, BPO (business process outsourcing) and testing services from one supplier. Over one third of the deals we won last year were for two services or more." Wipro, another IT giant and India's third-largest software exporter, reportedly added 15,688 employees to its workforce in the previous fiscal year, taking its total staff to 98,521.
It has weathered the recession more impressively by adding 37 IT services clients this year. Its net profit in the September quarter surged to 11.77bn rupees (Dh913.7m), from 9.73bn rupees for the same quarter last year. Its revenue from IT services, products and consumer care climbed by 5.6 per cent to 68.94bn rupees from 65.3bn rupees. "We see more stability in volumes and pricing, as well as an improving demand environment," said Azim Premji, the chairman of Wipro.
The positive earnings have improved business confidence of India Inc, says a survey by the Confederation of Indian Industry (CII), even though a slack consumer demand remains a concern. Of 450 companies surveyed, 54 per cent expect economic growth to range between 6 per cent and 7 per cent for the fiscal year. The Current Situation Index, which measures current trends in four industry indicators - same-store sales, traffic, labour and capital - gained 5.9 points for the six months between October and March, compared with the previous six months.
The Expectations Index, which reflects the opinions of executives on their companies' prospects, gained 8.1 points, which is symptomatic of a rising business optimism about an economic rebound by early next year. Sixty-three per cent of top India Inc executives, the survey said, believed a sustainable economic rebound was under way "The industry has better prospects for the coming six months and the economy has indeed bottomed out," said Chandrajit Banerjee, the director general of the CII.
But the IMF has raised concerns that the economies of India, China and Australia were recovering "too rapidly", indicating growing pressures on their central banks to raise interest rates and remove stimulus measures far ahead of advanced economies. "In a few special cases - the recovery is advancing so rapidly that output gaps are already starting to close and pressures are already emerging," the IMF said last month.
Devvuri Subbarao, the governor of the Reserve Bank of India (RBI), last week tightened the loose monetary policy the Indian government had adopted during the global financial crisis. Mr Subbarao left the repo rate, or a key lending rate, untouched at 4.75 per cent but pushed up the requirement for banks to hold at least 25 per cent of their deposits in government securities, up from 24 per cent, to try to withdraw liquidity from the system and stave off inflationary fears.
The RBI also lifted its inflation forecast to 6.5 per cent by the end of March from 5 per cent. @Email:email@example.com