India Inc today seems to be more aggrieved than it was during the height of the global financial crisis that followed the collapse of US investment giant Lehman Brothers four years ago.
The 2008 crisis certainly made Indian corporations introspect to cut costs and bring greater operational efficiencies. But today, the companies are short on ammunition as there is not much they can do. The real cost burdens lie with the government’s policy paralysis that has led to delayed project implementation, shortage of fuel, and high interest costs.
“This has really hit below the belly,” says A Issac George, director and chief financial officer at GVK Power and Infrastructure Ltd, adding that that while the 2008 crisis was due to regulatory oversight of the US authorities, the current one is more an issue of domestic governance.”Now, it’s only this or that; there can’t be both,” George says, emphasising that the government has to take harsh decisions to cut fiscal deficit and fuel growth.
GVK, the Hyderabad-based diversified conglomerate with interests across energy, airports, transportation and hospitality, has projects worth over $6.6 billion (around Rs 36,540 crore) in the pipeline in India.
There has been a sustained slowdown in Indian economy with gross domestic product (GDP) growth rate coming down to 5.3 per cent in the last quarter (January-March) of the last financial year against 9.2 per cent a year ago. The growth rate recovered slightly in the first quarter this financial year to 5.5 per cent, but the economy, according to experts, is still facing headwinds.
“While 2008 was largely seen as an external shock, our sense is that most corporates think of the current crisis as more driven by domestic factors,” says Ajay Srinivasan, chief executive, financial services, at the $40-billion conglomerate Aditya Birla Group. “Many people are now questioning whether trend growth for India remains at eight-nine per cent.”
A big part of the high growth period of 2003-07 saw about 15 per cent growth in real investments and that the figure is close to zero for the last three-to-four quarters, according to Srinivasan’s estimates. The current stagnation in investment growth is largely a voluntary decision, compared to the financial freeze in 2008.
Even at five per cent growth, India remains one of the fastest growing countries in the world. But without a proper policy framework, it will be difficult to attract both domestic and foreign capital.
Putting the Indian slowdown in the global perspective, Prabal Banerji, chief financial officer at Adani Power Ltd, says: “This time around, the crisis came along with stagflation which was not apprehended even by economists.”
Stagflation is a situation in which the inflation rate is high, the economic growth rate slows down, and unemployment remains steadily high.
It will take more than normal time for corporations to come out of the rut that they are in globally. “Commodity price volatility is something which added to uncertainty to business more than ever before and to an extent that global businesses did hardly knew how to face,” Banerji adds.
