Yes, there is a global liquidity crisis. Yes, world
trade is slowing down. Yes, we are into a down
cycle. But, given the shrillness of the news
commentaries, we need to ask, “Is it the end of the
road for India and for Indian businesses?”
As a starter, let’s get a perspective on GDP growth.
Even in the worst case scenario, India’s growth for
2008-09 will be over 7%. I am willing to bet on 7.5%
growth. Where does that put us?
Among economies with GDP over US$ 1 trillion, only
three countries will grow higher than 7% in 2008.
These are: China with a GDP of $ 4 trillion at 9.7%,
India with a GDP of $ 1.3 trillion at 7.5%, and
Russia with a GDP of $ 1.7 trillion at around 7.3%.
No other country comes close.
It is true that growth compression of 150 basis
points from 9% to 7.5% will cause pain in terms of
lower investment and employment growth and a tougher
business environment. Also, those whose fortunes
depend upon the US, the UK and the EU will be more
hit than the others who ply their trade in the
domestic markets. Even within India, some businesses
will be more affected than others.
But it is not a recession. It is a slowing down of
growth from 9% to 7.5%. Which is way better than
what it was in India in 2000-01 when growth was down
to 4.4%, or 2002-03, when it dipped even further to
What should Indian companies be doing in these
times? It is all about going back to the basics —
the things that all good companies know of, but may
have forgotten in the froth of 9% plus GDP growth.
Here are some of these basics:
• Profits are opinions; cash in bank is fact. So
says Infosys’ chairman, N.R. Narayana Murthy — a
saying that should define everything that we do in
• There are only two metrics for corporate success:
per capita revenue productivity and per capita cost
productivity. Another Murthy saying that is well
worth taking seriously.
• Back to the basics: optimise supply chains,
improve revenue turns, squeeze more out of the
turnover to fixed assets ratio, cut down working
capital needs per rupee of sales, slash every item
of inessential expenditure.
• Go for productivity increases everywhere. These
hide in good times. Find them in the woodwork and
take them to centre-stage.
• Control receivables like never before. Make that
rupee come in faster, and keep it longer. Make
maximising ROCE the mantra of your company.
• The client is Lakshmi. He who walks with her in
bad times will win her loyalty in the good times.
• Think and act like a true Marwari. He who
optimises cash wins.
I have no serious concerns about the micro of doing
business. It is the macro where I worry. Despite an
expected growth rate of 7.5% in 2008-09, I have
• First, public spend on infrastructure. Either in
December 2008 or in January 2009, the national
elections will be announced. Immediately, the Chief
Election Commissioner will call a halt on all
government projects. Bureaucrats will interpret this
to cover ongoing projects. The ministers will be
away from work. Economic governance will come to a
halt. Infrastructure spends won’t get going until
June 2008, when a new government is formed. It
happened the last time. Therefore, we should do
anything to prevent it from repeating itself. India
can’t afford it.
• Second, the fiscal deficit which, for the centre,
will be 4.5%-4.8% of GDP for 2008-09. Add to that
state deficits of 4%, and we are looking at
unsustainable medium term numbers. It is easy to say
that we should spend our way out of trouble. The
fact is that we don’t have fiscal surpluses to allow
us to be as Keynesian as China can. We should worry
about what this deficit means for tomorrow’s growth.
• Third, the quality of governance. We will have a
coalition government at the centre in 2009. The
question: How badly fractured and dysfunctional? If
it is worse than today’s, there will be a price to
pay in terms of growth.
Even so, there’s hope. We are in a golden era of
entrepreneurship. We achieve some of the best EBITDA,
EBIT and ROCE margins in the world. A GDP growth
rate of 7.5%, or 7%, or 6.5% (take your pick) is not
trivial. Most Indian companies know how to do the
right things in times of trouble — and many will
come out stronger than before. The RBI and SEBI have
been proactive. And there is some insulation:
domestic consumption accounts for 68% of GDP; and we
don’t have full capital account convertibility. So,
let’s not trash India.
Published: Business Standard, November 2008