Indian Economy: Attitude problem? - Views on News from Equitymaster

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Indian Economy: Attitude problem?

Dec 7, 2001

While the growth of the agricultural sector is at the mercy of rain gods, services and the industrial sectors are seemingly more manageable, so to say. However, the Industrial sector in the country has shown a disappointing growth for the first half of fiscal FY02. In 1HFY01, the IIP growth was 5.7%, while FY02 this figure is a dismal 2.3%. Of course, there is the slow down in demand, as always. But the reason for low growth could also be that new investments are not being made. According to RBI, corporate investments to create new fixed assets in FY02, are expected to be lower by 1.3% compared to FY01. The cause for concern is that this is not an anomaly, but a five-year trend. The trend shows that investments by corporates have been declining for the past five years. The expected figure for FY02 is 24% lower compared to FY97. In each of the years since FY97 corporate investments have not shown any growth.

What could be the reasons? One could be high cost of capital. Well, the RBI is doing a good job in moving towards a low interest rate regime. Thanks to them there is significant liquidity in the system. This move has caused credit off take to improve marginally but bulk of the money has found its way to the debt markets and bonds are quoting at all time low yields.

In an interview with Equitymaster, Mr. Mahesh Vyas, ED, CMIE pointed out two very interesting reasons for low credit off take. Firstly, a certain section of entrepreneurs, who have in the past invested extremely inefficiently, have lost their credibility with the banking system.

Read Equitymaster's interview with Mr. Mahesh Vyas.

However, it is the second reason that is more worrying. According to Mr. Vyas, "The other problem is that there are fears of imports coming in a large way and the unpreparedness of the Indian corporate sector to face competition from cheaper imports. And imports are only going to get cheaper. They are going to get even cheaper. Only if you can withstand such global competition, can you survive. The statement that comes across from the Indian corporates is that they are not sure they can compete. So they are not willing to put any more money."

Is the Indian industry therefore, slowing down due to a lack of attitude?

If yes, we have serious problem at hands. Unfortunately, business is all about attitude, taking calculated risks and going the extra mile. Who says we can't beat the global players at their own game. CSC's recent tie up with Satyam, was a clear acquiescence of the fact that no one can provide value for money in the IT services business better than the Indians.

For investors here lies a very big investing 'tip'. Watch out for managements that are not scared but are willing to take global competition head on. Only globally competitive organisations will survive and that means those, which don't want to be protected. They realize that prices will fall in the future and ready to play the game the way it is.

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