T N Ninan: Indian mega-corps

WEEKEND RUMINATIONS

Ten years ago, on the back of over 7 per cent GDP growth in successive years, the big Indian companies (and some small ones too) were announcing grandiose projects. Companies of even modest size said they wanted to get to Rs 10,000 crore revenue by 2000. Few of them did, for the fizz disappeared when the economy went into a spin in 1996. In fact, investment nearly dried up for a longish while after that. Now, of course, the big guys are talking of numbers that are 10 times bigger, and then some. Tata has just announced an investment plan of Rs 120,000 crore for the next three to five years. Mukesh Ambani's Reliance is doubling its refinery capacity at an investment of Rs 25,000 crore, spending as much on the new retail foray, investing Rs 40,000 crore in just one of several special economic zones, and over Rs 17,000 crore in oil and gas development, not to mention the petrochemical projects. So Mukesh too is investing Rs 120,000 crore and more. That's more than $25 billion by each group""big by any standard.

The two giants are not alone. Anil Ambani is investing Rs 55,000 crore in just one power project. Posco and Arcelor-Mittal are both putting up 12-million-tonne steel plants in Orissa at costs of Rs 40,000 crore and Rs 52,000 crore. And Kumar Mangalam Birla sounds positively modest when he talks of putting Rs 15,000 crore into aluminium alone, and Vedanta is not far behind. In fact, mineral-rich Orissa is said to have lined up investment worth over Rs 400,000 crore""ahead of four other states whose figures add up to about Rs 250,000 crore each. Take the investment numbers for just those five states and they equal about 40 per cent of India's GDP!

You're right, it doesn't sound real. Both Tata and Mukesh Ambani, as well as some of the others, are talking of investment numbers that are more than their current turnover. So where is the money to come from? Internal accruals over three to five years (the horizon for most of the proposed investments) can account for only a small proportion, and there is a limit to how much additional debt and equity can be raised on the same balance sheet. Indeed, the question would be whether the Indian capital market and banks are big enough to finance projects on such a scale, and how much money can come from overseas. In other words, I would wait to see which of these ambitious projects materialises on the scale and with the speed being talked about. The law of probability tells us that there have to be quite a few casualties, or a significant shift in time-scale.

If there is one reason to take the numbers more seriously than those of 10 years ago, it is because today's promises are being made by serious companies with serious plans. Reliance has a good track record of project delivery, and Tata has got noticeably new energy. But the worry point is the same as the last time round: money is getting tight, there has been runaway credit growth (more than 30 per cent over the past year), and interest rates are climbing. A project that looks good when money is cheap may not look quite so attractive if interest rates climb by three percentage points, and when a global demand boom yields (as most forecasters now say) to a definite slowdown. But even achieving half the numbers that are being touted would mean stretching the financing options available.

The noticeable change from 1996 is how international-minded companies have become. Domestic projects are globally bench-marked when it comes to costs, and the growing investment overseas seems to be in step with domestic plans""Tata seems to be acquiring something somewhere in the world every two or three months, and getting more ambitious with each deal, and Ranbaxy Laboratories has been doing the same. Reliance, meanwhile, earns 37 per cent of its turnover from exports, and Ratan Tata said in an interview 17 months ago that he would be happy with a similar ratio. In short, we may be seeing the birth in India of genuinely global giants.