India Inc feels the heat

Fri, 1 Jun Pre-Open

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We have been talking about the slowdown in different economies across the globe for quite some time now. And the Indian economy is no exception. But if you look at the new data out in the streets, the situation looks to be going from bad to worse. Recently released Gross Domestic Product (GDP) growth number for the fourth quarter of the last financial year 2011-12 (4QFY12), just at 5.3%, is the worst performance of India's economy in nine years. This is a clear sign of the deepening slowdown.

And if you glance at the March quarter results, declared by companies across various sectors recently, the flavour is more or less the same. The aggregate sales of over 2,000 companies (excluding oil marketing companies, refineries and banks) grew by just 10.3% during 4QFY12. This is the worst performance of the last ten quarters. This validates the fact that the demand environment is getting worse by the day.

And it is not just the poor performance at the topline level. The inflationary pressure has eaten away the profits of the companies as well. So much so that the above mentioned sample of the companies witnessed a de-growth of 2% at the net level during the same period.

Reasons for this poor show are well known. Besides economic uncertainties in the developed countries, stubborn inflation , high interest rates and policy paralysis are to name a few. Now the bigger question is how long this grim picture would prevail. And the answer is equally disappointing.

Many industry experts do not see any respite in the near future. And there are valid reasons for the same. Considering the prevailing inflationary pressure, the chances of rate cuts are not very promising. In the worst case, the Reserve Bank Of India (RBI) may take a U-turn and can again start tightening the policies. The free fall of the Indian currency is adding to the woes. This has made the external borrowings more costly. In additon, the rupee depreciation is putting extra pressure on the economy which is already facing huge trade deficit.

All this calls for some concrete steps from the government side. No doubt, the government does not have control over each and every thing. However, it can always manage issues such as widening fiscal deficit, supply side problems and policy paralysis in a better way. Mere focusing on social welfare schemes would be of no help in this deteriorating situation.

Till something good happens, expecting Indian firms to do well in next few quarters would be like setting wrong expectations!