CEOs vote Indian economy recovery post 2002

BANGALORE: A recovery in the economy could be expected only

beyond 2002, or that is what the Indian industry bigwigs felt while responding

to a snap poll conducted by the Confederation of Indian Industries at its

National Council and Associations Council meeting recently.

In a similar poll in July, majority from the industry said

the economy was expected to recover within a year’s time. Attributing the

"US effect" as a factor in this change in perception, it has become

clear that an economic impact is near certain. However, opinion is divided about

its magnitude. One lobby foresees a significant impact and there are others who

believe it would be moderate.

Responses were sought on three basic factors: foreign direct

investment, foreign institutional investments and trade to measure the impact on

the Indian economy.

A significant impact on FII inflows is expected because of

the actual trends witnessed in the aftermath of the attacks on the US. FIIs have

been net sellers in equity almost every day since the attacks (US $77.5

million), except for a few days which witnessed marginal net buying activity.

The recent announcement of a hike in FII limits has not been reflected in daily

trading yet.

A moderate impact on trade was also felt, on the anticipation

that sanctions against India would be lifted. The poll was conducted before the

formal lifting of the sanction, but it did perhaps influence expectations of a

pick up in trade in sectors affected by sanctions.

The concern area is perhaps the significant impact on FDI

inflows. With the quantum of FDI flows decreasing due to the global economic

slowdown, any impact on inflows from the biggest investment partner would

substantially affect India. The industry felt the infrastructure sectors would

have to bear the brunt of a decline in FDI inflows. Garments, gems, consumer

goods and engineering goods were some of the export-oriented products to be

negatively impacted. Software, aviation and tourism sectors were unanimously

chosen as sectors to be most affected.

However, the magnitude of the impact on the economy was

expected to be far greater because the Indian market has been sustaining growth

in the services sectors over the past five years.

The CEOs endorsed a complete focus on the implementation of

infrastructure projects as the best short-term route towards economic growth,

though reduction in interest rates and disinvestment as other desirable measures

were not ruled out. But secondary stock market revival did not really rank too

high as a short-term measure to revive growth.

An interesting response relating to the stock markets was on

the reasons for the lack of liquidity in the secondary markets. Given a choice

in terms of reduction in bank finance, ban on badla and a general lack of

investor confidence, the respondents almost unanimously chose the latter. Ban on

badla was the second and reduction in bank finance the third choice for the

respondents to the snap poll. The need to reintroduce badla to infuse liquidity

in the secondary market for stocks was emphasised by most of the respondents to

the poll.

Meanwhile, the CEOs felt that post monsoon demand especially

in the rural areas is certain to increase. They however, were conservative in

their growth projections during the second half of the current financial year.

Most of the respondents expect a less than 10 per cent growth in sales and

profits over the next six months.