We are sensing recovery, but it could be fragile

We are sensing recovery, but it could be fragile
The Financial Express, Corporates & Markets, April 7, 2009, Section II

Harsh Pati Singhania, president, Federation of Indian Chambers of Chambers of Commerce and Industry (Ficci) and MD, JK Paper Ltd, , in an interview with MG Arun of The Financial Express, said that the recent signs of recovery can be fragile, and the downturn in October-November was exaggerated. Excerpts:

The three stimulus measures seem to be working. Automotive sales is picking up, and so is demand for cement and steel. What kind of growth do you see for the Indian economy?

In 2008-09, we are likely to see a growth of around 6.5%. If I were to hazard a guess, growth in 2009-10 could be even lower. We would like to see a growth of 7% plus, but this would also depend on international factors.

We are sensing some kind of a mood of recovery. But this can be very fragile. March is the year-ending for most Indian corporates. So, there would be a tendency to push up sales. The quarter is also the time for the budget reallocation of spends for the government. There is a further spend due to the elections.

I also think that the October-November downturn was a little exaggerated. There was a huge inventory or pipeline correction that was happening. It was not that the demand was not growing at the same pace, but supply was cut to correct excess inventory. There is a downturn, but I would read the recovery with a little bit of caution.

What are the specific measures that need to be taken now?

There is further room for rate cuts in the low inflation environment. We need to bring down interests in actual terms. The RBI has cut rates by 400 basis points, from 9% to 5%. That is not commensurately captured in the actual lending rates of banks. Those rates have come down by 150 or 170 basis points. What we want to see is interest rates in single digits, in terms of effective lending rates.

Now it is 11-12% for large corporates, 15% plus for SMEs. Internationally, the interest rates are at 3-5%. This is unusual and needs to be brought down.

We need two measures. One is investment-led growth. Projects have to be viable, and if interest is not brought down, this is not going to happen.

Secondly, interest rates have to come down on the consumer credit side. China is going heavily on investment led growth.

Which areas are showing signs of optimism?

The FMCG sector is doing alright, so is auto. There is some demand in steel and cement. But exporters continue to be affected, despite the devaluation of the rupee by over 25% over the last year. The SME sector is hurt too, since many are involved in exports, and have a problem of finance. Restructuring of their loans is not happening fast enough. We have raised this issue with policy makers.

Do you think corporates need to take a hard look at their organisations, and even at compensations for top executives?

There are different solutions for different people. Corporates will have to look at restructuring or shed some portion, but other companies that have sound finances, will look at acquisitions, maybe. Companies have to be more innovative than conventional.

Regarding pay packets, there is already a big difference between India and the West. At the same time, we have to be socially sensitive. People have taken views individually on this. For instance, I’ve taken a decision that I will not take any increment in my company specifically.