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2013 was a year India Inc would rather forget. Characterized by cases of corruption, scams, and accusations of crony capitalism dominating headlines, a paralysis in decision making bringing economic activity to a halt, and tough macro-economic headwinds including a weak rupee, slowing demand and burgeoning debt sending corporate investment plans into a tizzy.
As we enter 2014, things are not looking very much better. India Inc is faced by a triple whammy of overleveraged balance sheets, low capacity utilization (at a 4 year low of 77% according to Barclays) and reduced productivity (an ICOR of 7 vis a vis 4) as well as lakhs of crores worth of projects stuck in red tape. Add to that, inflation continues to remain high, interest rates may rise further, external vulnerabilities continue to linger and stability in the domestic policy regime can be expected only in the 2nd half as politics takes centre stage in the first 6 months of 2014.
In this backdrop, is there any reason at all for cheer as we enter the new year?
Most corporate voices we spoke to expect the investment cycle to remain broken well past 2014 with a depressed outlook for the larger infrastructure space in the medium term. But since there is nowhere to go but up, corporate India is hopeful for better times.
“The lift to GDP will come from an improvement in industrial growth — on a low base — aided by pick-up in consumption demand, especially from rural India. Signs of progress in addressing ongoing mining problems would not only boost the sector, which has de-grown consecutively for three years, but also have a positive rub-off on power generation and manufacturing.” Says Roopa Kudva – MD & CEO of Crisil, writing for Businessworld magazine.
AUTO
Sunil Kant Munjal, Chairman of Hero Corporate who saw the auto sector battered by negative sales numbers is also cautiously optimistic and says the first signs of a revival are being witnessed already. “Farmers are spending money in anticipation of what could be the largest crop ever. There are early signs of a turnaround in demand and consumption in the urban segment too.”
STEEL
Other sectors like steel which have been reeling under soft prices and shortages of key raw materials like iron ore in 2013 could also see some light at the end of the tunnel. T V Narendran, MD of Tata Steel says despite all odds, his company has grown at 10 to 12 % over last year and will “continue to invest in building new facilities & capabilities” as Tata Steel is bullish about the long term growth prospects of India. In fact most steelmakers hint that the direction is a tad better in 2014 and a revival will be seen as they have undertaken price hikes and expect investments to come to fruition.
OIL & GAS
Oil & gas, especially the upstream segment meanwhile could benefit in 2014 from the near doubling of gas prices. Export-driven sectors such as IT, pharmaceuticals and textiles are also expected to do well on improved export competitiveness, the rupee depreciation and a recovery in the key markets of Europe and US. But companies like Dr Reddy’s which derive a bulk of their revenue from export sales are also planning to start looking to the domestic markets to drive sales.
PHARMA
“We are rebranding Dr Reddy’s with a re-launch next year, focussing on a different experience and communication. We want to be more patient centric rather than molecule centric. The domestic market is a sore point for us. It is a small percentage of our overall business and it is not satisfactory. We need to devote more management time and bring more services and products that make a difference to the nation, beyond the pill” GV Prasad, Chairman of Dr Reddy’s told Business Standard.
POLITICS: AGENDA 2014
Where politics is expected to hold back growth in the short run, the arrival of a new government with a visionary leader at the helm of affairs could boost business prospects. “Rahul Gandhi's speech at FICCI and reports of Narendra Modi's track record in Gujarat raise our hopes” N R Narayana Murthy, Chairman of Infosys told the Economic Times.
In fact most corporate honchos, when asked what the government’s to-do agenda must be for 2014 propose that they’d like to see a continuum of the reforms ball that’s already been set into motion, no matter who comes to power. While industry was pleased with the government for pushing through key legislations on Land Acquisition, Lokpal and Companies Act, it wants expeditious action on energy security, infrastructure, a focus on job creation, an overhaul in the tax regime, incentives for more FDI to flow into the country and appropriate measures to tackle stubbornly high inflation.
"We would have liked to see faster progress on Goods and Services Tax (GST), infrastructure regulation, and ease of doing business reforms... Flagging demand due to inflation has hit industry hard. The administrative and bureaucratic procedures need to be time-bound and fast-tracked so that investments can be rapidly stimulated," CII President Kris Gopalakrishnan told PTI.
Siddharth Birla, President at FICCI meanwhile sought action to ease the overall business climate. The World Bank ranked India at the 134th position among 189 countries in ease of doing business in 2013 and Birla says we need to “prioritise areas that would have maximum impact in terms of improving ease of doing business and give quick attention to these in a stipulated time frame.”
The window for economic reforms is small this year and it is indeed a tall order for the government that will be preoccupied with politics rather than concerns of industry in the first half of the year. But any hope of an improvement in the economy is closely linked to these reforms, so disregarding them is just not an option.
