Indian businesses reel under inflationary pressures: Survey

MUMBAI: Indian businesses of all sizes are facing the impact of inflation in terms of rising labour and raw material costs as well as logistics expenses, according to a survey.

Nearly 7 out of 10 companies in India reported that labour costs are increasing and 64 per cent of businesses face rising logistics expenses.

Rising raw material cost (54 per cent) was also highlighted as a major concern, the survey by workplace solutions provider, Regus, said.

An overall inflation rate of 8.82 per cent was reported in March 2011.

The research by Regus asked over 600 senior business decision-makers across India how inflationary pressures were affecting their business operations.

The top three effects of inflation experienced by the businesses are increases in labour, logistics and raw material costs, the survey said.

Regus Regional Vice-President (South Asia) Madhusudan Thakur said, "countless words have been written about inflationary fears, but our research confirms that the great majority of companies in India are now experiencing real impact on their business."

With the Reserve Bank of India raising its benchmark short-term interest rates by 50 basis points on May 3, it is clear that the Government is taking this issue seriously, and balancing economic growth with inflationary pressures will be a key challenge for policy-makers going forward, he said.

The survey also revealed a divergence between the number of smaller and larger companies being affected, with more larger companies experiencing a lower demand for their products and services, and increases in raw materials and labour costs.

While 45 per cent of small companies said they were affected by increase in raw materials costs, among larger companies the percentage stood at 64 per cent.

Forty-three per cent of small companies experienced a lowered demand for products and services, while the percentage stood at 58 per cent for large firms, the survey said.

With regard to increase in labour costs, 66 per cent of small companies said they were affected by it, while it was higher at 73 per cent in case of large entities.

Thakur said, while the survey indicated that more larger companies are currently exposed to rising inflation, "we anticipate that increasing numbers of smaller and medium enterprises will also be affected."

According to him, with inflation having an operational impact, smart business leaders will now be looking at the most effective ways of managing their cost base while continuing to grow their enterprise.

"Our recent business confidence index is showing that 70 per cent of companies in India are looking to reduce spend on workplace and own growth across the country is being fuelled by business seeking cost-effective ways to work," he said.