Key Highlights:

  • Indian economy facing a prolonged slump, GDP growth to remain a laggard for the next few quarters, believe the CEOs surveyed.
  • Weak credit growth and consumer demand seen as major impediments to growth.
  • Expectations of increased focus on infrastructure development.
  • Further efforts warranted from the Government to improve the ease of doing business.
  • Weak demand outlook for the next fiscal year.
  • M&A activities likely to remain sluggish.
  • Digitalization and cost optimization seen as main areas of focus for businesses.
  • Personal tax reforms expected to dominate headlines of Budget 2020. Higher taxes for HNIs unlikely. 1/4th expect action on the DTC front.
  • Over 3/4ths foresee DDT rate rationalization. LTCG tax expected to remain untouched.
  • The jury is still out on the benefit of recent corporate tax rate cuts. A significant 1/3rd neutral on the impact of the tax rate cuts.
  • Lingering concerns over tax terrorism expressed by an overwhelming majority.
  • Over 80% respondents push for addressing GST structural and implementation issues. Implementation of e-invoicing and input credit matching must to augment GST revenues.

In-depth Analysis:

India's GDP at a six-year low - Is the worst behind us?

The first fiscal quarter of 2019-20 saw India's economic growth registering a six-year low of 5% and thereafter plummeted to 4.50% in the second quarter. Around 42% of the respondents attributed the current economic slowdown in the country to the rising number of non-performing assets and the slow credit growth and an equal number believed that a sluggish consumer demand is the single most important reason contributing to the anemic GDP growth.

When asked to choose their top growth sectors for the next fiscal, more than half the respondents placed their bets on infrastructure while close to 40% believed financial services and FMCG will propel the economy forward.

Budget 2020 - a Do-or-Die budget?

Expectations are built on the fact that the budget 2020 will give a wide-ranging policy thrust to turnaround the economic slump. Over 2/3rd respondents believed that the FM would weave the present Budget around measures to encourage infrastructural spending, while more than 1/4ths foresaw measures to boost exports as the major macroeconomic theme of this budget.

Close to 30% of the respondents feel that reforms in land and labour laws could be the key policy drive of the Government in the upcoming budget. Approximately 20% believed that actions would be taken for revival of the real estate sector, that deploys the second largest workforce in the country along with the construction sector. 1/5ths believed that the Government would continue to ease the monetary policy measures to boost credit availability and consumer expenditure.

India moved 14 places to be 63rd among 190 nations in the World Bank's “Ease of doing business” report 2020. However, only about 25% rated the efforts of the government as more than satisfactory on this account. A large sample seemed to suggest that more effort on this front must be taken by the Government.

India Inc - Business Outlook

A substantial majority of the respondents do not foresee a very positive demand outlook for their business in the next fiscal, with over 85% expecting slow to nil growth.

Around 3/4ths confirmed to operating at capacity utilization rates of close to 70% for the past year. Of these, half acknowledged utilization rates of 70-80%.

Almost 60% of the participating CEOs were seen rating the ease in availability of funds from banks and other financial institutions as challenging.

Questions regarding the key challenges and business drivers foreseen by the participants impacting their business were raised in the survey. Close to 60% of the CEOs foresee a weak demand scenario as the key challenge that will be faced by their business. In addition, nearly 40% also believed that government policies is also an area to be closely tracked.

Investments in infrastructure and urbanization emerged as the single largest business driver for CEOs that will be positively impacting their businesses. Slightly over 25% votes were received for digital transformations, lower interest rates and growth in consumer finance in this space.

Only a quarter of CEOs surveyed confirmed to actively pursuing M&A related activities, while the remaining rated this space to remain sluggish.

Exactly 60% of the CEOs affirmed that their primary focus would be on cost cutting measures and operational initiatives. Interestingly, digitization and technological upgradation also garnered over 50% share.

Direct Tax reform expectations - Is the budget 2020 set to refine the tax environment?

According to half the respondents, the recent reduction in corporate tax rates will manifest itself in improving global competitiveness of Indian businesses and will provide impetus to manufacturing thus, improving the capex cycle. On the contrary, around 32% believed it may not result in visible changes.

Owing to the significant reduction in the corporate tax rates, most participants were quite optimistic of personal income tax reforms dominating the theme of this year's direct tax proposals. Another quarter believed that implementation of the Direct Tax Code proposals will be the key priority of the Government in this year's budget, whilst about an equal number felt that the dispute resolution and settlement scheme would be executed.

The Finance Minister had recently indicated that the Government is considering rationalization of the Dividend Distribution Tax. A significant 3/4ths, while divided on what could be the new DDT rate, feel reduction of the DDT rates is on the cards in the upcoming budget. More than 1/3rd of these participants felt that DDT levy may be scrapped in entirety. A minor 25% viewed the lack of fiscal room as a hindrance to a reduction in the DDT rate in the current budget.

A step towards attracting more long-term investment in India from foreign investors sees withdrawal of the long-term capital gains tax, however, the participating CEOs' responses did not reflect the same. More than 60% of them anticipate no changes in the LTCG tax rates. However, close to half of these respondents expect a reduction in STT rates.

41% participants feel that the Government may consider rationalizing the surcharge rates on high net worth individuals, increased significantly in the previous Budget, while close to 45% felt that the Government may neither reduce nor bring in any new levy for HNIs.

In a scathing indictment of the Government, close to 3/4th a majority raised concerns over tax terrorism. Of these, half believed while the political will to tackle the issue is in place, the implementation was lacking, while the other half unequivocally expressed that their businesses were witnessing increased harassment from tax officials.

GST reforms - Will there be a reign of GST 2.0?

GST was conceptualized as a Good and Simple tax. However, after two and a half years of its introduction, more than 35% of the respondents felt that it suffers from many structural issues and it still needs to be implemented in its true spirit. In addition to this, about 45% were of the view that implementation issues have made the Good and Simple law very complex.

If the Government were to realign the current GST slab rates of 5%, 12%, 18% and 28% and collapse it to 3 rates, more than half the respondents suggested that slab rates of 6%, 16% and 28% could form the revised structure.

In order to augment GST revenues, close to 60% of the respondents suggested that the Government should consider implementing new returns enabling input tax credit matching as its first priority. 44% votes were in favor of implementing e-invoicing to help achieve this objective.

View PDF - Pre-Budget CEO Poll 2020