Indian firms most concerned about rising protectionism: HSBC Report

90% of Indian firms surveyed feel the govt is trying to protect the economy; many fear it will erode their traditional global markets such as US

A recent global survey by HSBC, 'Navigator: Now, Next and how for business', covering 6,000 companies across 26 markets revealed that Indian firms are most concerned about the increase in protectionism across the world. 

The perception of rising protectionism is much higher than the global average, where three in five (61 per cent) of the 6,000 companies surveyed, think that their governments are steadily moving towards protectionism.

Meanwhile, domestic events such as the implementation of Goods and Services Tax (GST) and demonetisation, which  stifled GDP growth to a four-year low in 2017, feature little on Indian firms’ minds as they begin 2018. There is strong optimism about demand for their products in the global markets, while prospects at home are also picking up. 

However, the concern remains that risks of protectionism may harm their prospects in traditional global markets, especially in the United States. 

More than 80 per cent of the surveyed firms see their trade finance needs and ability to access it growing over the coming year.  

The survey also reveals that almost nine in ten Indian companies feel that the governments are trying to protect their domestic economies while increasing tax on imports, leading to a rise in the cost of doing business globally, changing trade routes and raising hurdles to obtain trade finance. 

 

Firms also continue to worry about transaction costs, exchange rate volatility and regulatory issues, but overall are not too concerned about accessing finance.

Rajat Verma, Head of Commercial Banking, HSBC India said, “An increase in protectionist sentiment is causing concern about the cost of doing cross-border trade and international business. Companies are adapting business plans and relationships to participate in shifting supply chains. Strategies include increasing regional trade, establishing joint ventures or local subsidiaries in more markets and capitalising on trends in consumer demands and digital technologies.”

The survey underlines that domestic lending conditions may tighten, in the wake of the recent banking scandals.

Trade initiatives that are likely to lower trade barriers are viewed positively in India, as a consequence of the especially-high concern about protectionism. Indian firms are most united in the positive impact of ASEAN 2025 and SAFTA on their businesses.

 

Globally, the majority of firms are looking to regional partners to develop trade opportunities, with almost three quarters (74 per cent) of overseas trade in Europe and Asia-Pacific being conducted within their ‘home’ region. This trend is set to continue with regional ties being prioritised in firms’ expansion plans for the next three to five years.

The high degree of optimism about international business prospects exists among Indian businesses surveyed with nearly all (94 per cent against the global average of 77 per cent) saying that they expect their trade volume to increase in the next twelve months. Reasons behind this expectation and confidence include an increase in demand for their products from consumers and businesses (33 per cent), favourable economic conditions (31 per cent) and the greater use of technology (22 per cent) in driving growth. 

Moreover, other regions where the sentiment is strongest among companies are MENA (70 per cent) and Asia Pacific (68 per cent). In the USA, 61 per cent believe protectionism is on the rise, while in Europe, half (50 per cent) are seeing a rise in protectionist tendencies.