When you have spent decades in the truck-making business, youhave a sense of what is coming around the corner. For that reasonalone perhaps it is instructive to listen to Managing Director R.Seshasayee's troubles in running a new factory in Pantnagar,Uttarakhand.
Set up around 11 months ago, the commercial vehicle maker hadspent close to Rs 1,300 crore on the latest technology and a world-class industrial architecture at a plant sprawled over nearly 200acres and of 75,000 vehicles capacity a year. Pride-swollen chestsgave way to severe headaches by December, though. The roadsconnecting the plant were choked. "We had ramped up our productionbut soon faced serious challenges. We could not get our supplies innor could we move out the fully built chassis," says Seshasayee,which resulted in "severe delays" at the factory. Other majorinvestors in Pantnagar, a new hub of manufacturing in north India,face this same problem today, adds the Ashok Leyland MD, who in 2006-07 was president of Confederation of Indian Industry, or CII, thecountry's most powerful business lobby.
Badly stretched infrastructure is coming in the way of thebarrelling Indian economy. India's busiest port, run by theJawaharlal Nehru Port Trust, or JNPT, near Mumbai, presents anothersorry state. On an average, it takes less than a day to unload aship - a sea change in turnaround time from a decade ago - but takesthree days for a container to move out of the port. Add another fourto five days for transportation to, say, a Gurgaon factory, by raillines. In other words, a container from Singapore can reach the JNPTport in as little as four days but takes more than a week from thereto reach Gurgaon.
Such problems compound all over India as a government thatperformed with aplomb after the global financial crisis appears tohave buried its head in the sand now. Even Reliance Industries,India's biggest private company by revenues, finds approvals fromthe government delayed - something that is rare for the behemoth."You will appreciate that such delays impact production... schedulesfor exploration, appraisal and development programmes," ExecutiveDirector P.M.S. Prasad recently wrote to Oil Secretary S.Sundareshan on clearances relating to the company's D6 gas field inthe . "Normally, the work programme and budget for a year isapproved at the beginning of the financial year but it has not beenapproved yet even though only two months are left in the financialyear."
All these troubles are yet to add up to a trend reflecting in theheadline numbers, but the Indian economy looks like it is headedinto rough waters, if not already there. Moderation is alreadyvisible in the growth of industrial output, which hit an 18-monthlow of 2.7 per cent in November, the latest period for which data isavailable. The pressures of runaway food inflation are fast spillingover into the manufacturing sector. Input costs are rising. The soleweapon in use in the fight against inflation - quite inappropriatein the current situation of supply bottlenecks - remains theinterest rate hikes by the Reserve Bank of India, or RBI, which inturn are resulting in a rise in the costs of borrowing.
To be sure, there are few signs of domestic demand slowing inreaction to these rate hikes - resulting in housing and consumerfinance rates rising by half to a full percentage point in therecent months - but many worry that a slump in purchases is justaround the corner. "The real worry is from some of the economicindicators this year, such as inflation and the monetary tighteningby RBI," explains Y.V. Verma, Chief Operating Officer at LGElectronics and President of Consumer Electronics & AppliancesManufacturers Association.
There are also new risks looming large from global developmentsthat the government has no control over: rising commodity prices,especially of food and crude oil, for instance. Global oil pricesare ruling above $90 per barrel and will only march northwards asthe recovery in advanced economies strengthens. The government'sfuel and food subsidy bill is mounting. The Food Price Index of theFood and Agriculture Organization of the United Nations hit a recordhigh in December.
Countries like China, Vietnam and Brazil all face double-digitfood inflation. India is not a major food importer yet, but highglobal prices can af fect price sentiment here. "International foodprices have surged sharply this year and the floods in Australia arelikely to exert an upward pressure on grain prices," says M. GovindaRao, Director, National Institute of Public Finance and Policy, aNew Delhi-based think tank. "Increasing commodity prices are a majorthreat to growth."
In short, the overall outlook for the economy is less optimisticthan it was just three months ago. The central bank, known to chooseits words carefully, flagged the heightened risks in its latestpolicy statement on January 25. It expects the rate of growth toslow down. It will announce by how much on May 2, 2011. (Seeinterview 'The Growth Rate May Come Down'). "The combined risks frominflation, the current account deficit and fiscal situationcontribute to an increase in uncertainty about economic stabilitythat consumers and investors will have to deal with," the RBIwarned. "To the extent that this deters consumption and investmentdecisions, growth may be impacted Slower growth can also have asignificant impact on capital inflows, asset prices and fiscalconsolidation," it said.
It worries A. Subba Rao, Group Chief Financial Officer, GMRGroup, that there is no effort from the government to triggergrowth. "Inflow of capital is going to be scarce. Capex will go downand the negative sentiments will affect consumption too. Corporateswill find it difficult to raise capital this year. Such a situationwill last for the whole of 2011-12," he fears. That could make for aweak footing to start the Twelfth Five Year Plan, 2013-17, on - aPlan that will count on half of the Rs 40-trillion total investmentsin the period to come from the private sector.
Subba Rao's prediction of weak capital expenditure in the nextfiscal year stems from the seven interest rate hikes by the RBI overthe past 12 months. The latest increase of 25 basis points in therate at which the central bank finances banks had the CII cryingfoul. "RBI is setting the stage for a series of rate hikes that willhave a negative impact on the investment momentum," Director GeneralChandrajit Banerjee reacted in an unusually sharply wordedstatement, referring to the slowdown in investments.
If GMR, CII and others in corporate India are so down on India,how come the government is unruffled? New Delhi, panned recently byleading businessmen and lawyers for what they called "a governancedeficit", is optimistic that the growth story is intact. Part ofthis is because the government is faced with - or chooses to dealwith - data that comes with a lag of six weeks to three months. Ifit looked around for some forward-looking cues, it might not be socomfortable.
The latest quarterly industrial outlook survey conducted by theRBI in October-December indicates a marginal moderation in overallbusiness expectations for the January-March quarter. HSBC PurchasingManagers' Index, too, shows some moderation in the pace ofmanufacturing sector expansion in December. And, the Indian equitymarkets have shed 10.5 per cent in value in January.
Ahead of a year with five state elections , when FinanceMinister Pranab Mukherjee presents the 2011-12 Union Budget inParliament on February 28, there will be few signs that a robusteconomy is turning. He is likely to be within the 5.5 per centfiscal deficit target he had set for the government.
Ajit Gulabchand
Chairman and Managing Director, HCC
We are losing Rs 2 crore a day due to the abrupt closure slappedby the Ministry of Enviroment & Forests on our Lavasa project. Indiashould have environment standards in place rather than arbitraryaction against projects.Impact: A McKinsey study estimates that landacquisition and environment clearances-related time/cost over-runsfor projects average ~25%.But, as the Economic Advisory Council tothe Prime Minister and the RBI have warned, the deficit target willbe met purely thanks to non-permanent sources of revenue and withoutany expenditure reform. For 2010-11, Mukherjee will also be helpedby a sharper-than-expected rebound in agriculture from a bad year -statisticians call it the 'base effect' - and consumption demandthat will likely buoy the rate of economic growth for 2010-11 to theprojected 8.5 per cent or close to it.
But the real worry is that the industrial and services sectorshave performed below expectations and may not look up unless thereare strong positive signals. "The threat (of a slowdown) is real.The existing momentum could lose steam quickly," says Ajit Ranade,Chief Economist, Aditya Birla Group. "Steep hikes in interest ratesnow could spook growth more than inflation as the time to beproactive is past." Foreign direct investment is down 27 per cent to$19 billion in 2010 while rivals such as China have increased theirinflows above $100 billion.
The spotlight of expectations then shifts firmly to New Delhi. Ifthe Congress-led United Progressive Alliance, or UPA, governmentdoes get its act together, the outlook could recover as quickly asit worsened. If that happens, it could make for a return to the pre-global financial crisis rate of growth as investors begin to resumefunding of capacity expansions - which is also the prescribedantidote to inflation. Prime Minister Manmohan Singh enjoys a hard-tomatch reputation with investors. Even the slightest push fromSingh to the Cabinet could improve the investment sentiment.
But Singh is showing no signs of emerging from the stupor the 2Gspectrum scandal and the Andimuthu Raja episode cast him into lastyear. Analysts point out to a telltale sign in the mid-JanuaryCabinet reshuffle: Singh did not drop the poor performers.
A V Dharmakrishnan
ED (Finance), Madras Cements
Coal prices have more than doubled in two years to $140 per tonneand power tariff has risen by 10 per cent, besides interest ratehikes.
Impact: In addition to increased costs, cement makers in SouthIndia face demand contraction and a glut in manufacturing capacity
In a world run by realpolitik, Cabinet colleagues and key allieslike Agriculture Minister Sharad Pawar are clearly untouchabledespite repeatedly not reading inflationary signals right or takingsteps beyond Band-Aid fixes like export curbs. Deeper supply chainand distribution bottlenecks have just not been addressed.
Cracks in the Cabinet under a leader perceived as not decisiveand strong came out in the open when Commerce and Industry MinisterAnand Sharma, worried about the impact of the rate hikes onindustrial growth, wrote to Mukherjee a couple of weeks ago. "Thehigh inflation in primary articles, particularly vegetables is moreon account of supplyside constraints and monetary policy may not bethe most suitable intervention to deal with the situation," heargued. Mukherjee did not reply.
Little is coming by way of signals from the government on itsstrategy on the economy. Mukherjee held two press conferences in thelast two weeks of January but said precious little. Two bigquestions loom before businessmen and the Indian workforce: how badcould matters get for the economy and growth in gross domesticproduct? And, how long could the rough patch last? Three of the fiveeconomists BT spoke with ) predict GDP growth will be less than 8.2per cent in 2011-12. Even the RBI, which has retained its 8.5 percent estimate for 2010-11 with an upward bias, is cautious on theoutlook for the next financial year saying "growth may declinesomewhat" due to a high base effect this time for agriculture.
These predictions will come true, if not next year then the yearafter for there are glaring gaps in the economy that need fixing.Agriculture and food policy, for instance. V.S. Vyas, Member of theEconomic Advisory Council to the Prime Minister, says there aredeficiencies at multiple levels: minimum support prices, and theinstitutional system for transfer of technology, benefits ofresearch, seeds and inputs. "The extension machinery is completelybroken down. Big farmers have some access but not small farmers.Even 50 per cent of the credit meant for small farmers is notreaching them," he says. "Going forward, two or three things need tobe looked at - macroagri-policy, region-specific agri-policy andwater management." Put simply, goals that cannot be achievedovernight or without political will.
R. Seshasayee
Managing Director, Ashok Leyland
In December, we had ramped up our production in Pantnagar andsoon faced serious hurdles. Roads were not taking the load. We couldnot get our supplies in nor could we move out the fully builtchassis.
Impact: Until Sept 2010, 118 roads and highway projects - 37% oftotal projects - were running behind schedule. As a result, fewerthan 4 km of roads were built a day compared to the 21-km target
In the non-food economy, increasing the pace of infrastructurerollout is a difficult target given that project completion comeswith significant time lags - three years after a road project, forinstance, is awarded to a developer. By that yardstick, the lowmeasure of road projects awarded in 2008-09 - 643 km - will come tohaunt the UPA this fiscal year and the next. The road projectsawarded in 2009-10 and to date in 2010-11 are a healthy 3,360 km and3,860 km, respectively, but they are caught in poor projectexecution, and time and cost overruns, partly due to problems overland acquisition and environmental approvals.
Ask Ajit Gulabchand, Chairman and Managing Director of HindustanConstruction Company, or HCC, who has acquired a poster-boy statusover his fights with the government over green clearance for hisunder-construction hill station at Lavasa. The Rs 3,000-croreproject is one among the 64 Environment Minister Jairam Ramesh hashalted. Prior approvals to another 469, some dating back to 2006,are at various stages of review - amounting to about one projecthalted a day since Ramesh got his job. Even the HCC chairman doesnot grudge environment standards but wants consistency in policy."We are losing Rs 2 crore a day. India should have environmentstandards in place rather than arbitrary action against projects,"he insists.
In spite of the latest hiccups, few dispute a sound future of theIndian economy in the long term. If anything, what worriesprofessionals like Akhil Gupta, Chairman and Managing Director ofbuyout fund Blackstone in India, is whether the high inflation willchange from one of cyclical nature to "a structurally highinflation". Or, whether India will chug along but will have to livewith high inflation, a la Latin American economies. The fix forthis, he recommends in an echo of the RBI, is fiscal discipline.
Whether India will get to tackle its troubles and stokeinvestment back to the levels seen a few years back is anybody'sguess. One instance from the Congress Plenary meeting at Burari, atown northwest of New Delhi, a week before Christmas does notinspire confidence. Party President Sonia Gandhi's call to hersenior leaders and party workers to clean up corruption, especiallyaround land acquisition, was greeted with silence.
"So, no clapping for this one," asked a surprised Gandhi. Thatsurprise, showing the disconnect between the Congress leadership andits rank and file, is not good news for business.
Additional reporting by Rishi Joshi, Manu Kaushik, N. Madhavan,K. R. Balasubramanyam, Anand Adhikari, Shamni Pande, Suman Layak andT.V. Mahalingam
Комментариев нет:
Отправить комментарий