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Industrialists are airing mixed views on Indian Economy; some are really negative

Nevin John     July 19, 2018

The Modi government is in the last year of its eventful term, however, there are mixed views on its performance at the economic front. The industry's long pending demand of Goods and Services Tax (GST) was implemented last year in a bid to simplify the tax system. A little before that, the government had shaken the economy by demonetising the high value currencies. In addition, the two senior economists in the North Block --- former Chief Economic Adviser Arvind Subramanian and think-tank NITI Aayog's chief Arvind Panagariya --- stepped down. The top industrialists in the country have been quite reluctant in publicly voicing their concerns about the economy in all these years. The scene is changing now.

Rahul Bajaj, chairman of Bajaj Auto expressed his fear about the economy in the recent annual report of the company, saying he would be disappointed seeing the forthcoming GDP numbers. "As you know, I am neither a soothsayer nor its modern day avatar, an economist. Thus, I find it difficult to predict what a country's GDP growth will be like until the numbers are published and become known to all. Even so, I had somehow expected that we might cross 7 per cent growth in FY2018... However, it looks as if I will be disappointed," he says. The second advance estimate of national income had in February pegged the real GDP growth for 2017-18 at 6.6 per cent. "If this is what we actually end up with, it will represent a deceleration of 50 basis points compared to 7.1 per cent achieved in the previous year. The gross value added (GVA) estimates show a similar trend. Real GVA growth for FY2018 has been estimated at 6.4 per cent versus 7.1 per cent in FY2017," Bajaj says.

The major two reasons that he cites for poor performance of GDP are insufficient investments and bad loans of banks. "Our share of gross fixed capital formation to GDP has been declining over the last six years and now stands at 31 per cent. This is insufficient to bring about a steady-state growth of 7.5 per cent to 8 per cent. The second is the terrible state of our banks. Saddled by a huge overhang of bad loans or non-performing assets that have eroded their balance sheets and destroyed profits, most banks have neither the requisite financial strength nor the confidence to fund industrial growth," he explains.

He further adds, "This is not only affecting the bigger players but, much more so, the medium and smaller scale corporate entities across India who are now hard-pressed to secure necessary working capital let aside term loans for investments. Despite the benefits that ought to accrue from the new bankruptcy process in India, I do not see a quick resolution to this problem."

Telecom czar Sunil Mittal, chairman of Bharti Airtel said in the annual report of the company that his company experienced favorable economic environments in both India. The telecom industry has witnessed huge amount of disruption after the foray of Mukesh Ambani's Reliance Jio with digital services and Airtel reported the lowest annual profit in a decade at Rs 1,099 crore in the last financial year. There was an unprecedented consolidation in the industry which shrunk to only three private operators in the market from eight because of the brutal price war. However, Mittal says that India recovered remarkably well from the prolonged dissonance caused by demonetization and the teething troubles of GST.

"The telecom industry faced an extraordinarily turbulent year in India through unprecedented disruption. Extreme pricing pressure accelerated market exits and industry consolidation, which evolved towards a 3+1 structure (3 private telcos + 1 public sector telco)," he adds. Last year Mittal said that Jio's prolonged free voice and data offers forced telecom companies to write off investments of up to $50 billion.

Kumar Mangalam Birla, chairman of Aditya Birla group said in his address to the shareholders of Ultratech Cement on Wednesday that India's economy has shown considerable resilience to the transitory effects of demonetisation and implementation of GST. However, there are near-term challenges, he says. "The bucket of concerns consists of rising oil prices, hardening inflation, firming bond yields and widening current account deficit. The ongoing global trade frictions, particularly between the US and China, are worrisome and can have a spillover negative effect on countries like India. So the terrain ahead could be a tad bumpy depending on the economic and geopolitical environment," he says in the annual report.

Chairman of JSW Steel, Sajjan Jindal says in the annual report that India's macro fundamentals, such as fiscal deficit and credit rating are improving, and broad-based financial reforms are being undertaken through initiatives such as relaxation of FDI rules, enactment of the Insolvency and Bankruptcy Code (IBC) and growth stemming from government spending. Tata group chairman N Chandrasekaran says in the annual report of Tata Steel that India stood tall amongst its global peers and continues to have a significant growth promise in the future. "During the year under review, there were several structural reforms implemented in the country including the GST and the IBC amongst others. These structural initiatives are important for enhancing the country's future competitiveness," he says.

Mukesh Ambani says in the annual report of Reliance Industries (RIL) India's economy maintained strong growth with a GDP rise of 6.7 per cent, especially with the last quarter growth of 7.7 per cent. "With the 'One Nation, One Tax' GST regime being implemented, and gradually stabilising by the second half of the year, the economy witnessed upsurge in investments, consumption, as well as government spending. Industrial activity rebounded, and services indicators too showed positive trends. Thanks to a series of policy initiatives, India moved into the world's Top 100 countries in terms of ease of doing business. The country also retained its position as a favoured destination for foreign capital, with gross foreign direct investment inflows of $64.6 bn in 2017," he says.

Infrastructure and engineering major Larsen and Toubro (L&T) said in its recent outlook on the economy that the domestic reforms such as GST, IBC and the real estate act RERA have led to disruptions in the last year. However, it anticipates that the reforms will lead to sustainable long term growth.

The industry body Ficci said on Thursday that India's economic growth story remains intact and the country's GDP is expected to grow around 7.5 per cent in the current financial year despite short-term challenges. According to the body, the slowing down of industrial output growth in May and higher retail inflation in June are "short-term challenges which are being pro-actively acted on by the government and the RBI, and these should not be seen in any way as hurting the signs of revival in the economy significantly".

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