By Sushma Ramachandran, IANS,
What lies ahead for the Indian economy in 2009? This is the question looming large in corridors of the country’s corporate world, as India Inc hopes the economy will transition from annus horribilis that 2008 was to annus mirabilis, which it hopes the New Year will be. A look at 10 major issues which the country’s corporate sector has to contend with in 2009:
Demand Slowdown: This is the first critical problem and it is hitting all sectors of the economy. The slowing demand has filtered down to the retail space with shops finding fewer buyers even in the normally robust festive season from October to December. One of the main reasons for this has been the impact of the global financial crisis. Export growth has come to a halt after many months of double-digit expansion. This has had a cascading effect on many other sectors of the economy, leading to stagnation in both industrial output and infrastructure development.
The good news, however, is that the ensuing harvest season, or the rabi crop, is expected to be bountiful and the outlook is positive for higher rural demand within the next three-four months. With farm output still accounting for a large chunk of the country’s economic pie, the rise in rural demand is likely to translate into a greater sense of all-round well being.
Job Losses: The aviation industry tried to bite the bullet when Jet Airways chief Naresh Goyal issued pink slips to nearly 1,000 employees and said similar sack orders were in the offing for 800 more. But he had to quickly back down and reverse the decision. Yet, jobs are going in many sectors, especially in export-oriented industries like textiles, handicraft and gems and jewellery. The fallout of employment losses in the diamond trade has snowballed into a political issue in Gujarat and the crisis may be mirrored in other states over the next few months. Job losses will increasingly become politicised in the run up to the general elections early next year. But industry may have little choice but to cut flab unless demand picks up significantly later in the year.
Public Issues: Number three on the list is how the corporate sector can raise money from the public when stock markets are not particularly buoyant. In January, the sensitive index (Sensex) of the Bombay stock Exchange (BSE) was at an all-time high, but now rules at 50 percent lower. Indications, nevertheless, are that the market has now bottomed out with the Sensex having finally moved to the vicinity 10,000-point mark. But most companies that had planned public issues for 2009 are going to hold their fire till the situation comes back to a much more even keel.
Consolidation: The fourth issue India Inc will have to face is the prospect of a shakeout in key industries. The aviation sector, for instance, is already in the throes of buyouts and mergers. The unlikely alliance between Jet Airways and Kingfisher Airlines to avoid competition on flight schedules is unprecedented in India and based on falling demand. Similarly the numerous TV channels are also expected to see a shakeout. A recently launched English news channel is reported to be looking for a buyer and other media houses have begun retrenchments though this has not been reported widely in the press.
Inflation: True, the annual rate of inflation based on wholesale prices has come down sharply from over 12 percent a few months ago to a little over 6.5 percent now. But the rise to double-digit inflation during 2008 had pushed up prices of raw materials and components sharply. Industry will be watching the price index closely to see its impact on production costs. The Reserve Bank of India (RBI) will also have to continue monitoring the price index to ensure that it declines to the targeted level of 4 percent by the end of the current fiscal. This will be crucial for easing its monetary policy so that India Inc can get credit at competitive rates.
Energy Security: The cost of energy is the sixth problem the corporate sector will have to face in the ensuing year. Global oil prices may have fallen now, but this is not expected to be a long-term trend. Prices are expected to rise as soon as demand picks up in the emerging economies like China and India. This will continue to be a worrying feature of the country’s economy since more than 70 percent of our crude oil requirements are met from abroad.
Services: Another key issue would be the fate of the information technology and outsourcing sectors. The IT industry is linked to demand for services in the global economy. With this demand having diminished, the ever-rising graph of this sunrise industry may now slow down. Fortunately, IT majors have so far weathered the storm well, but much will depend on the extent to which they are able to bag more contracts in the future. The outsourcing industry has provided a large number of jobs within the country. Here again, it is integrally linked to multinationals facing the impact of the global meltdown – and do we see an opportunity here? This is the question that will determine this industry’s fate in 2009.
Credit: Linked somewhat to the need to raise funds through public issues, finding cash to run enterprises will be another crucial issue in 2009. India Inc has been crying hoarse that liquidity is not the only problem when it comes to accessing funds from banks. They also want interest rates to be cut. The government is doing its bit by pump priming the economy. Eyes, therefore, are on the Reserve Bank and commercial lending institutions for desirable rate cuts.
Entrepreneurship: The prospect of declining entrepreneurship is also looming large, primarily because two sources of funding are drying up – venture capital and private equity. This factor may force further consolidations.
Tourism: The 10th major issue would be the need to prop up the tourism industry as it has its implications on a host of related sectors – from hospitality to aviation. The tourism industry was getting a major boost with the “Incredible India” campaign but there now appears to be a question mark following the Mumbai terror attacks. A fall in tourism will also lead to a drop in dollar receipts – also called invisibles earnings.
These imponderables – much of it linked to the external economy, the political situation within the country and the strategic security scenario with neighbours like Pakistan – will ultimately determine whether 2009 becomes a year of miracles or horror. Yet, few expect India’s growth rate to fall below six-seven percent. And if that is achieved, the country may again end up being one of the fastest growing economies in the world.
(28.12.2008 – Sushma Ramachandran is an economic and corporate analyst. She can be reached at [email protected])