And The Walls Fall Down

And the Walls Fall Down

The last bastion is under attack. The big white hope of economic resurrection, that phoenix to rise from the ashes, is India’s domestic engine of growth.

It has always been the idea of robust and reliable Demand that is the best thing about the “India Story”. And this demand projection is overwhelmingly domestic.

Till now, domestic demand has grown, generally in double digit percentages year- on- year, varying from sector to sector. It has surged, fuelled by evident and pent up demand, the latter driven by earlier cumulative supply deprivation.

This phenomenon is what has made us attractive to every peddler of goods and services from Tipperary to Timbuktu, hiding at the same time, a thousand embedded and endemic sins of inefficiency and delay in the Indian way.

Demand in the Indian economy has been routinely reckoned to be robust for several decades to come, because we are woefully short of infrastructure and modern amenities. However, goods and services have started meeting expectations. Still, we are far away from the prerequisites of a developed nation.

Exports account for just 25% of GDP in round figures. This includes IT at nearly 8%; while merchandise exports are 17.7% within this mix.

There is only modest market share growth in IT exports, about 9%, and value addition too, but profit is declining from a heady 25% to 30% before 2008 to about 10% to 12% now.

Despite this, the logic is impeccable. India has a billion point two in population. India has a 60% population between the ages of 15 and 35. China is ageing. Europe is both broke and geriatric, and accounts for 300 million souls with a negative birth rate and at least 30 million unemployed.

America can, and by default is, boosting numbers and vitality with Hispanic immigration. Obama used this shrewdly in both his election victories, because the demographics, and with it, the attitudes are changing very substantially.

South America and Africa are, as yet, beautiful works in progress. The Asia-Pacific is largely developed and now coming relentlessly under the shadow of Chinese domination.

But BRICS is faltering too, Brazil, Russia and South Africa have growth rates in the 2% to 3% band, India is between 4% and 5%, and China too is not going to see double digits very soon either.

But things are likely to get worse for us. Home grown ratings agency CRISIL RESEARCH says Indian demand is to slow even more sharply.

India Inc. Revenue growth will decelerate to 7.5% in the fourth quarter of this financial year, from 17.5% for the corresponding g Q4 last year.

CRISIL reviewed 28 sectors of the economy, excluding banks and oil and gas, and this is the projection.  Everything that is investment-linked will decline further. So capital goods, construction, vehicles, tyres, auto components, steel, are all falling.

And this is partly happening because of the shameful mismanagement of the economy. CRISIL says administrative delays, high cost of money, huge inflation are all causatives.

Information Technology is down, but it is better off than manufacturing. So is Telecom, and Entertainment, on the back of greater digitisation and its cost savings. But no one’s balance sheet has much of a wow factor to it today.

Unless the Government revives investor sentiment with rapid developments both in policy and on the ground, this scenario is going to get worse. We need massive investment now. Otherwise, some sectors will descend into negative growth territory.

The choking of growth, after all, was a deliberate policy carried out to contain inflation. The effort has failed in its objective but has strangulated growth alright!

Business confidence going forward is lower than it has been for the last three years according to the NCAER Survey. And shareholder returns have, in any case, been declining ever since 2008-09 according to a Financial Express Survey.

There is very little the Government seems   to be doing to arrest this terminal decline despite the Prime Minister’s wish to revive “animal spirits”. Of course, no sooner does Mr. Manmohan Singh declare something, one of his ministers or the High Command decides to contradict him.

Consistency of policy therefore be damned in the UPA, with its dual centres of power. We are not likely to revive anything in the months left to this weakened Government, and ditto if UPA is returned to power.  

Across the aisle, if Mr. Narendra Modi is brought in to lead, his expressed strong support for business and industry and economic growth will certainly deliver the goods.

Let us hope the BJP, its affiliates and allies, plus the electorate, realises it, and does what it takes to raise him to the Prime Minister’s post.

(773 words)

March 28^th, 2013

Gautam Mukherjee