After months of bad news on the global economy front, there are some intermittent indicators that perhaps the worst may have already been seen. The aftershocks of this meltdown will of course continue to reverberate for a few more months or even well into the next year. However, it seems that the trillions of dollars that major governments have pumped into their economies to clean up the so-called toxic assets appear to be staunching further bleeding of the world’s economy. Indeed, some have already begun divining for the so-named green shoots of recovery.
While there is justifiable scepticism about any immediate recovery in major economies such as the US, UK and Japan, there are enough early indicators that the Indian economy has probably seen the worst of the slowdown and that a recovery in growth rate may begin to happen before the year ends. The quarterly earnings reports so far have not been as bad as expected, the consumption data across a diverse range of commodities and consumer product industries such as cement, steel, cotton and manmade yarn, automobiles, and telephones shows signs of growth. The stock market itself may not be the most accurate indicator of recovery, but it is certainly heartening to see the Sensex touch 11,000 again, inflation firmly under control, and bank lending rates finally inching down again. Further good news for India in April includes the beginning of gas production by Reliance Industries (that will have a far-reaching positive impact on the Indian economy and in the near term, reduce India’s foreign exchange outflow by almost $9 billion per year at current energy prices) and the exemplary redemption and sale of Satyam to Tech Mahindra.
The Indian business leadership now needs to respond to these encouraging signs in a pragmatically positive way.
To start with, the focus on cost cutting must now give way to planning for growth. This is not to say that the businesses should put on the flab they have discarded recently with a lot of pain. Instead, while efforts must continue to stay trim and fit, it is time to start giving various positive signals slowly but steadily. Some of these signals include gradual lifting of self-imposed curbs on business travel, and thawing of the self-imposed freeze on hiring at different levels, including at the entry levels. Yes, travel costs may still be managed at lower levels by downgrading the class of travel and the hotel but nevertheless it must be undertaken to allow managers to get a first-hand on-the-ground feel of the current consumer and business sentiment and then plan accordingly. The commencement of hiring not only benefits those who are hired but also boosts the morale of the organisation itself.
While all consumer product companies and retail businesses must continue and even step up marketing and promotional efforts so as to boost consumer spending, some sectors need to do even more. These include the beleaguered realty sector that has finally seen the larger players accept the ground reality and come out with more attractive pricing and more aggressive wooing of customers. The travel and hospitality sector has seen positive action at the mid-price range offerings but the high-end and luxury-end players still seem to be acting in a denial mode. The earlier they too accept that corporate and individual consumers are willing to travel but need more value-priced offerings, the better would be their utilisation of the currently under-utilised capacities.
Focus must also shift to identifying new opportunities for large investments. In addition to the traditional industries and infrastructure-related sectors, there are large emerging opportunities in sunrise sectors such as healthcare and education. These sectors also continue to have high interest from private equity and other investors and hence, the ability to raise capital for robust business models is a realistic expectation.
What can the new government do to provide further stimulus to the economy? It should seriously take up policy reforms in sectors such as education, ease FDI restrictions in employment-creating sectors such as retail and insurance, offer priority lending and tax breaks for healthcare businesses especially those that create additional hospital beds in smaller towns and rural India, and finally, speed up implementation effort on infrastructural projects, eg highways and the rural road scheme (PMGSY), mega and other power projects, modernisation of ports, airports and railways etc.
With these steps, there is no reason why India cannot come back on a high growth trajectory in the current financial year itself.
