I recently spent a week in India meeting a wide range of economic participants – companies (both large and small), banks, industry experts and economic commentators. What is clear is that the economy is entering another down leg. The bountiful monsoon may save us to an extent, but things are getting worse in terms of industrial production and private sector capital expenditure.
Of the factors that were expected to lead to an acceleration in the rate of economic growth – falling interest rates, unclogging of the investment cycle and some pickup in exports – none seem to be playing out. In meeting after meeting, I felt that people had finally given up. All the enthusiasm generated by Finance Minister P Chidambaram in his first six months in office has dissipated. It is extraordinarily difficult to implement most of the policy.
Industrialists have absolutely no interest in making any fresh investments, and have very little confidence that projects that are currently stuck will start moving. Capital goods providers also seem to see little sign of the public sector investment stepup that the finance minister talks about. Domestic order books remain subdued. Even consumption seems vulnerable; most of the participants agreed that consumption beyond a point couldn’t keep growing independent of the broader economy.
Everyone is convinced that this growth slowdown is largely self-inflicted. We have lost the plot and cannot blame our travails on external factors. The business class has given up the hope that the country would ever get back to the high growth rates achieved in 2003-07. Most have made business plans assuming that growth will be at best six per cent over the coming few years. Cost cutting and asset rationalisation, not growth, are at the top of their agenda. The complaint that India was uncompetitive in terms of infrastructure, land, labour (adjusted for productivity) and capital remains. If this is true, how will any new manufacturing investment happen?
Most small and medium-sized entrepreneurs seem to be fed up with the daily harassment of doing business in India. Basically, when India was booming, the sheer adrenaline of growing at nine per cent was exciting enough for investors to put up with the hassles of doing business. Now at five per cent growth – and dropping – the upside of doing business here does not seem to justify the hassles. Every industrialist I met had bought property overseas in the last 18 months and was in the process of creating a parallel establishment as a hedge.
In short, the mood was deeply pessimistic. Many now fear for the country’s future. It is always darkest before the dawn, and this deep pessimism may be a contrarian indicator, but even rational and sensible people now seem to have given up. While it is truly difficult to be positive at present, one should not forget that we are a democracy with checks and balances. We have a very young and hugely aspirational population. The political system will eventually have to adapt to the needs and wishes of this huge demographic. We will have to make the systemic changes to bring growth back. It is wrong to think that we have permanently lost our way. The risk is that we could have some more pain ahead, maybe even a crisis before the required changes happen.
(Source: Extracts from an Article by Mr. Akash Prakash in Business Standard dated 30-07-2013)
