That the economic outlook for Indian remains wobbly is a well known fact. In this blog, I explore what FY 14 has likely in store for us, and what we can do to make the best of it. Though no economic downturn is ever permanent, the recent cycles have demonstrated that they can be both longer and more frequent than ever, thus highlighting a unique problem arising due to the extent of interconnectedness of global economies. Cases in point: A remote nordic island, Iceland’s fall shaking up the entire global banking system in 2008, and more recently, Greece, Spain and Portugal threatening the stability of EU and the rest of the world; in short, a contagion effect is an omnipresent threat, now more than ever.

 

Although several economies worldwide have been hit by the downturn, India, interestingly enough, remains robust. We saw this in 2008, and we are seeing it again now. One vital factor being robust domestic consumption softening the blow to the economy. Let us take a closer look at some of the economic indicators of India. Indian GDP in 2012 at purchasing power parity stands at $4.825 billion making it the 3rd largest economy in terms of PPP (CII). India continues to be a rapidly growing economy as seen over the last decade and a half (GDP has grown from $250 billion in ’97 to $1.8 trillion in 2012). An interesting fact to be noted is that Agricultural contribution to GDP has shrunk from 32% in 1992 to mere 14% in 2012 indicating the rapid industrialization as well as growth of service industry. India is favorably predisposed with young demographics; India has among the least percentage of population above the age of 65 and is expected to add 290 million people to the workforce by 2050 as against a decline by 233 million for China and mere 29 million for the US. India remains a well diversified economy with sectors such as Auto, BFSI, Oil & Gas, Telecom etc. contributing to domestic consumption as well as exports. Despite global slowdown, we closed FY 12 with a GDP growth of 6.5%, and expect to close FY13 at around 6%. While this may seem disappointing in absolute terms, we must consider the fact that among the BRICS, India continues to be one of the fastest growing economies (in 2012, Brazil grew a mere 2.7%, and South Africa 3.12%). An important factor for this growth being domestic consumption fueled by a large and fast growing middle class. The Indian middle-class is among the largest in the world (expected to reach 60 million households by 2015 as against 13.3 million homes in 2005).

 

Inflation has remained persistent over the years ranging between 7 and 8% with primary articles and fuel prices being the drivers. But any fast growing economy is bound to face this problem. A strong economy would create inflationary pressure as companies battle for workers and raw materials, pushing up wages and prices. Too, if the economy is strong, businesses will be eager to expand and will compete for saver’s capital, bidding up rates. This is the painful reality we need to come to terms with and realize the futility of expecting RBI to lower interest rates. Overall, corporate sector performance has been weak with disappointing Net Sales growth (14% for FY 13 as compared to 17.2% for FY 12) PAT growth expected 9.3% for FY 13 as against 12.1% for FY 12. The slowdown can be primarily attributed to rising input costs and interest rates.

 

So what can we expect for FY 14? Not much can be expected in terms of external drivers of economic activity due to persisting uncertainties in US, and Europe; China too is showing signs of slowing down. With rising crude oil prices, inflationary pressure will persist both on industries as well as on commodities. A silver lining on the horizon though is the recent policy agility demonstrated by the centre. Some of the reforms in sight are fiscal consolidation through measures such as hike in diesel prices (beginning with bulk consumers and progressively rising prices across the board), reduction in subsidiary on LPG cylinders, direct transfer of subsidies to poor people, and approval for disinvestment of four pubic sector PSUs. Slight easing of monetary policy (The recent 50 basis point repo rate cut and a CRR rate reduction by 25 bps is expected to infuse Rs. 170 billion in the system, a much needed respite), FDI reforms and land reforms are all positive signs.

 

While the centre is doing its best to ring in the fiscal deficit and attract much needed foreign investment, these measures by themselves may not be adequate to revive the economy. India Inc. will have to depend on newer and innovative means to fuel growth. We enjoy several favorable conditions in the form of relatively cheap labor, quality consciousness, and global image as a reliable outsourcing destination for both products & services. The key would be for us to build on these strengths and develop our niches. Apart from growing the domestic market, it is essential to selectively grow our exports especially to some of the fast growing emerging economies. Africa is one such market, which is vast and still relatively untapped. The IMF says continental GDP of Africa will grow by 5% in 2012 and about 5.7% in 2013. A new research paper by two World Bank economists says that if Africa were one country, it would already be “middle income”, defined by the bank as having income per person more than $1000. Africa’s average is $1700. Technology is having a bigger effect in Africa than anywhere else, for instance, the use of telephones went from 0.7% of the population to 70% in the last decade alone! Africa is a global pioneer in banking on mobile devices since most people do not have access to conventional banks. Infrastructure is another big sector in Africa and rest of the developing world, diversifying into this sector would not be a bad idea.

 

In short, uncertainties and downturns notwithstanding, there are vast opportunities to be tapped and growth to be realized. The key for Indian industries is to remain patient yet opportunistic. With the right strategies in place, I’m confident that Indian industries will go a long way in not only beating these economic cycles but also coming out stronger than ever before!

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Naveen Narayanan

Naveen is a Mechanical Engineer with an MBA in International Business from Thunderbird School of Global Management, USA. He has over seven years experience in the world of Strategy and Change Management and is a Certified Six Sigma Black Belt and Quality Improvement Associate from American Society for Quality. Over the years, he has led several corporate wide transformation programs, mentored change agents, and produced sustainable customer and business results for clients throughout Asia-Pacific. As a Lean Six Sigma Master Black Belt, he has a strong grasp of the fundamentals of statistics and problem solving techniques. He is a certified assessor for Business Excellence conforming to EFQM model and a Certified Internal Auditor for TS 16949:2002 standard. View LinkedIn Profile

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