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Understand Their Pain

Omkar Goswami

These days, there are two distinctly different tales that you hear in corporate India. The first is what I call the public platform-chambers of commerce-apex industry association narrative. The second is a very different story, which is usually shared in smaller huddles, and outside the realms of public consumption.

The first tale is told on the rostrum, often accompanied by smart PowerPoint presentations, and at some big FICCI or CII event — especially one where the chief guest is a minister or a high ranking official of the union government. The story runs thus: There is no doubt that the global economy is going through severe contraction, led by the US, the UK, continental Europe and Japan. Yes, it will affect growth rates, though it will hurt us less than China because we have a larger cushion thanks to our domestic demand, while China is over-dependent on world trade. But let’s not exaggerate the pain. After all, we will grow by around 6.5 per cent in 2008-09, and will achieve roughly the same growth next year. Look at the growth forecasts of all major countries. Everyone that matters is in negative growth territory, except India and China standing tall at over 6 per cent. Let’s appreciate how good the three fiscal stimulus packages have been. Let’s laud the proactive role played by our government and the Reserve Bank. The pain will be for just a short while. Come the second quarter of 2009-10, we will be back in action. India has everything going for it. Let not a minor blip come in the way of this being India’s century. Thank you, ladies and gentlemen.

A round of hearty applause from the front rows. An appreciative look from the minister of senior civil servant from the high table. And the VIPs have been effectively secured for gracing yet another event.

At the end of such a speech, if you looked closely at the back rows — populated by the not so important chaps who are struggling their guts out trying to make ends meet in these times — you would have seen a great deal of incredulity. But the back row boys don’t really matter in terms of significance, consequence, connections or resources. They are statistics that swell the membership. So the eyes don’t stray that far away. And yet, they too have a tale worth recounting.

Think of medium scale auto component suppliers in northern India — the solid, entrepreneurial, hard working fellows who you see in Gurgaon, Manesar, Faridabad, Ludhiana, Pantnagar, Roorkee and Baddi. Let’s hear their story. It is a very different one. The lucky ones have seen their order books slashed by a third; many are facing a 50 per cent drop in their orders. In the last couple of years, they had raised capacities being told that 9 per cent GDP growth would never end. Funds for expansion were all too readily given by banks and other NBFCs, irrespective of the borrower’s low equity base. Remember, even 18 months ago, you were told never to worry about silly old concepts called high leverage.

Now the lines are empty. The poor fellow is also being hit by additional depreciation and higher interest costs. The same banks who were only too willing to fund him to the hilt are playing coy about extending his overdraft limit. They are asking for additional promoter guarantees, as well as extra margin calls to cover that part of the loan which was backed by shares. The customers have slashed prices. Even worse, firm orders are getting pushed back or cancelled outright at about the time when the raw material has moved to the shop floor for processing.

This is true not just for auto component manufacturers. Ask people who run textile mills, forge shops, small machinery units, foundries, repair shops, gems and jewellery manufactories, clothing and apparel businesses, accessories, travel and tourism agencies, retail outlets, cement plants. To a person, they will tell you exactly the same tale. Sharp reduction in order books; even sharper fall in prices; banks forsaking their customers, especially the foreign banks who had muscled their way in over the last decade; rapid increase in receivables; and every rupee coming in being treated like a gold mohur — to be cherished and not spent.

Forget strategy. Forget about growth planning. Forget how independent India will look at 75. Just deal with the crunch of today.

Yes, I do believe that we will come out of it quicker than the OECD countries. At least to a 7 per cent or 7.5 per cent growth path. But in the meanwhile, let’s understand the pain. And do something to help those thousands of back benchers in CII and FICCI events — those who want their voice to be heard, their pain to be shared, their hands to be held.

Published: Business World, March 2009


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