Double digit growth in India by 2012

Thu, 24 Jun Pre-Open

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Jim Walker, one of the world's most respected economists may have rejected the claim outright. But India's finance minister is confident that the target can be achieved. And that too as early as 2012. We are indeed referring to that elusive economic growth of the magnitude of 10% and above. In other words, a double digit GDP growth rate for India. Mr. Mukherjee was speaking on the sidelines of a forum in Washington. And it is here that he made the observation that India could experience double digit growth rates for the first time within the next five years. And in fact, as per him it could be as early as 2012.

He did not elaborate further though. It should be noted that the Indian economy grew by 7.4% in FY10. No less than a commendable job given the difficult economic conditions that prevailed in the rest of the world. However, we believe that the target of a double digit growth does look a bit steep. We may be able to do so for a couple of years depending on global factors. But to achieve it on a consistent basis does look farfetched. Nevertheless it would be interesting to see what kind of reforms the government unleashes in the months to come. It is only then that the idea may actually look like a reality. As of now, it is just a distant dream according to us.

Armed with cash, Indian FMCG cos. keen to splurge overseas

There is barely any industry as blessed as FMCG when it comes to free cash flow generation. Add some growth to it on a consistent year on year basis and the cash pile is likely to bulge even more. Major Indian FMCG companies seem to be in a similar situation. Not only are they generating healthy returns on capital but they are also growing at a pretty fast clip. Little wonder, most of them have accumulated some very good cash on their balance sheets.

Now, you can either pay the excess cash back to the shareholders or reinvest the same to grow the business. Most of the FMCG companies are opting for the second option. However, they are not content with reinvesting in the domestic markets alone. For them, the inorganic growth is the way to go.

Have a look at somebody like Godrej Consumer for starters. It has already made five acquisitions during this quarter. However, its thirst is far from being quenched and the company is looking at more acquisitions. So are other companies like Dabur and Emami. It should be noted that these companies are not targeting the developed markets. And why would they given the fact that most of these markets are saturated and likely to grow at pretty moderate rates going forward. They are instead looking at the emerging Asia and Africa.

For those who are already present there, it has indeed been a very pleasant experience. Take Dabur for example. Last fiscal, the company's sales from international markets touched Rs 6 bn. This may not be a significant number in the overall scheme of things. But is only expected to grow bigger from here. Same is the case with other companies as well. Few years from now and international operations of Indian FMCG companies will really become a significant part of their operations. Thus, do not be surprised if going forward, one of India's true blue MNCs comes from the FMCG sector.