Corporate India has added a new word to its jargon: the C-word. Ask any CEO or banker about the difference between the slowdown in 2008 and now, the answer is almost repetitive: “We can still live with the S-word, but the C-word has made all the difference this time”.
While the slowdown has been a common factor in both 2008 and 2011, what makes it worse this time is that confidence has taken several hard knocks, courtesy an ‘almost lame duck’ government, an unreasonable Opposition, which has gone for the kill, and a global crisis yet to unfold fully, according to a Business Standard report.
The consensus is that last time, the government was quick in announcing a stimulus package; this time it neither has the money nor the inclination to do anything fruitful. TVS Managing Director Venu Srinivasan says in 2008, fiscal deficit and inflation were in control, which is not the case now. But, the government is barking up the wrong tree by still looking at populist measures (with an eye on the state elections) like clearing the Food Security Bill, which will only add to expenditure and impact the fiscal deficit.
The lack of confidence has meant the industry is sitting on cash and is reluctant to make fresh commitments, as a result of which fresh project proposals for loans have come down to zero, bankers say. The capital goods industry has already started feeling the tremors. L&T Chairman A M Naik is blunt: Order flow growth will be at best 0-5 per cent in FY12 and FY13 will be very challenging.
There are some who point out some critical differences between the crisis now and in 2008. Maruti Suzuki Chairman R C Bhargava says, “In 2008, the banking system had collapsed and banks were not willing to lend either to corporates or to individuals, to buy a car for instance. In 2011, banks have cash but consumers are not buying because of high interest costs, high fuel costs and inflation — problems the government can easily resolve.”
That makes Maruti, which has seen its sales growth in reverse gear, hopeful the current crisis won’t be that harsh. Bhargava is, however, quick to add the government “should have the mindset to take decisions to reverse the trend”. And that, everyone agrees, is a big ‘if’.
In consumer durables, no one is really cutting down on investments, at least till now. For instance, Korean major LG Electronics had earmarked a capex of Rs 800 crore for this calendar year and is committed to it. But LG Chief Operating Officer Y V Verma says the company will wait and watch before committing fresh investments for the next year.
Videocon Chairman Venugopal Dhoot thinks the crisis is being “exaggerated”. In consumer electronics, he says, the problem was the expectation of the industry had gone up. So, it was pitching for 40 per cent growth.
It’s clear now that growth won’t be more than 15-20 per cent, which is not bad at all coming on the back of high growth last year. “The sudden depreciation of the rupee has forced us to increase prices, but consumers are still coming. Rural demand is intact,” Dhoot says.
But what Dhoot and others are not saying is even rural demand is shrinking. For example, rural sales growth for India’s FMCG and consumer durables industry has dipped to only 10 per cent in the April-September period.