There are two massive shifts happening within India’s economy: tax reform and demonetization. And both of these, experts say, have a particular impact on the nation’s SME community.
With regards to tax reform, India is introducing new Goods and Services Tax (GST) legislation, and some companies are concerned about how small businesses will be able to adhere to the new rules.
“GST is not just a tax reform, it is a whole new way of doing business,” said Walmart India president and CEO Krish Iyer in a statement last month.
In Walmart’s case, the concern over SMEs’ ability to manage the tax structure changes is so strong that the retail giant is launching workshops around India to help its small suppliers understand the changes they need to make to remain compliant.
Perhaps the more well-known economic shift in India is demonetization, which jolted the payments industry when it suddenly came into effect last year. Small businesses, analysts warned, would be adversely affected by the move as many of them depend on cash to operate. Supplier payments and payroll made in cash, for instance, were common before demonetization, so entrepreneurs had to scramble to keep the cash flowing without the ability to turn to paper notes.
But a new survey from American Express suggests India’s SMEs are doing just fine despite the economic shifts — in fact, researchers found they’re better than fine.
Data released by American Express, which commissioned Oxford Economics to conduct the research, found Indian SMEs to be more optimistic than many of their peers in other parts of the world. Globally, 65 percent of small- and medium-sized businesses are optimistic about the world economy — that figure bumps up to 71 percent when zeroed-in on Indian SMEs.
The rate of pessimism is also lower, with 4 percent of SMEs worldwide reporting pessimism over the world economy and just 3 percent of Indian SMEs saying the same, according to the American Express Global SME Pulse2 2017 report, released last week.
India’s small business optimism in both the domestic and global economies is also higher than that of SME optimism across Asia, surpassing Japanese, Chinese and Singaporean small business optimism rates, reports noted.
While some analysts have warned that economic shakeups like tax reform and demonetization could destabilize small businesses, American Express found that Indian SMEs are actually embracing the change, with 73 percent of smaller businesses saying they are enthused about recent government initiatives.
Nearly 70 percent said government policies have reduced barriers to entry and led to more business opportunities.
“With a conducive policy framework and positive regulatory steps taken by the government, the SME sector has seen substantial growth,” said Saru Kaushal, American Express India’s global corporate payments vice president and general manager. “This survey clearly highlights the optimism and confidence among SMEs, and businesses are deftly navigating through challenges to thrive in India.”
More than three-quarters of Indian SMEs are forecasting revenue growth of at least 4 percent over the next year, and nearly half said their revenue will increase by at least 8 percent.
Thats significantly more than the 27 percent of SMEs worldwide that predicted that same 8+ percent revenue growth rate for the year.
The news is undoubtedly good, but American Express’s Kaushal advised that small businesses need to stay on top of their financial management. Optimism is good, but only if that optimism turns into diligent planning and execution of a strong financial management strategy.
“With SMEs focusing on expansion and investing in latest technologies, they need to manage their expenses effectively,” the executive stated. “Financial discipline can help companies tackle slower business growth even in a slackened economic environment.”