The dreaded R-word is in the air: The latest evidence to many urban Indians that recession is looming over the country came on Friday when statistics revealed that industrial production had dropped — by 0.4 per cent — in October for the first time in 15 years.
But here’s the surprise: A cross-section of economists and corporate leaders emphasise that India is not the West. And, as a special Hindustan Times report indicates (see pages 11 to 13), there are many sectors that are booming and hiring.
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“We are nowhere near a recession,” said Surjit Bhalla, economist and managing director of Oxus Research, a financial markets-focused research firm. “The sentiment, though, is terrible — influenced, in part, by what is happening in the West.”
The broad consensus is that the country’s GDP will grow at about 7 per cent in 2008-09 and at about 6 per cent the following year. Even worst-case scenarios project these figures to come down to 6 per cent-plus and 5 per cent-plus, respectively. Four years ago, had anyone projected these rates of growth, every Indian and his uncle would have grabbed them.
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Three years of 9 per cent-plus growth — and hype about India being on the verge of double-digit expansion — now makes this seem like a painful crawl.
“With the benefit of hindsight, one can say that of this 9 per cent growth, about 6 per cent was actual growth and 3 per cent was bubble,” said Nandan M. Nilekani, co-chairman, Infosys Technologies. “The deceleration in growth has to be seen in this light and in the context of the revolution of rising expectations.”
Yes, the Sensex is down 60 per cent from its January peak, but the truth is that 21,000 was “bubble” territory. “And stock market movements can’t be treated as a barometer of an economy or of policy measures to stimulate it,” said Bhalla.
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The panic in urban India, though, is real. And this is feeding what many call an “emotional recession”.
“Indians have been exposed to the risk of job losses for the first time,” said Subir Gokarn, chief economist, Standard & Poor’s Asia-Pacific. “This is bound to influence their behaviour.”
Do you know anyone who's lost a job? Chances are that you don’t. The truth is that not many white-collar jobs have been lost in India. “I don't think existing employment will be very badly hit,” said Nilekani.
On the contrary, hundreds of thousands of such jobs are being created.
State Bank of India alone will hire more than 20,000 people. Max New York Life will add 30,000-plus to its payrolls. And the Big Three of the IT sector – TCS, Infosys Technologies and Wipro — will recruit more than 50,000 professionals between them.
A recent survey by human resource consultancy firm Manpower says employment will grow, albeit at a slower pace than before.
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This is not to say that times aren’t tough. They are: Liquidity is a problem; credit is hard to come by; the inflation rate is still too high for comfort; and many companies are finding it difficult to drive sales.
Companies and sectors that are exposed to the West (like information technology and textile exports) or to debt-fuelled consumption (real estate, automobiles and white goods) are particularly vulnerable.
But there’s hope. Said Sanjiv Goenka, vice-chairman, RPG Enterprises: “We have seen no drop in sales among SEC A category consumers at our retail outlets. But we are seeing a deferral of white goods purchases. The economy needs a demand stimulus.”
Given that the inflation rate is heading down (it is at 8 per cent for the week ended November 29, 2008) and is expected to fall further to about 5 per cent by March, 2009, “there is room for a 100-150-basis point cut in the repo rate”, said Gokarn. This will result in significantly lower lending rates and provide a fillip to consumption.
He added that the forces of domestic recovery are already in motion, though their impact will be felt only after a lag of six to nine months.
The bottom line: the next two quarters will be tough, but the economy should begin to pick up by the second quarter of 2009-10. “And the next year will be reasonably good,” felt Gokarn.