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TRENDS: LEAD Whither The Economy? Forget the tech slowdown. The real crunch is coming: the ebb in global economy. And despite what they may say, things don't look pretty for India. -Ashish Gupta
It's a good thing that finance minister Yashwant Sinha headed out on a g-24 jaunt last month. And that's not because the conclave of inter-governmental group of 24 on international monetary affairs is growing in importance. Rather, when Sinha returns from the 65th meet around May 4, he would probably have a better grip on the world economic outlook. At the moment, he and his top advisors are pooh-poohing the global slowdown. The sense of confidence, as numbers reveal, is totally misplaced. The Delhi-based Institute of Economic Growth (IEG), which tracks the economy month on month, has already lowered its gross domestic product (GDP) growth estimates from 6 per cent to 5.8 per cent. Reason? One, the world economy is growing at a snail's pace of 3 per cent, and the biggest economy of them all, the United States of America, has been facing one downturn after another. The casualty won't just be software exports to America, but all other export items as well, considering that the US accounts for 18.9 per cent of India's exports. The second reason is the softening of consumer confidence in domestic market. For instance, the growth in sales of passenger cars which was 57 per cent between April and February last year, is now down to just 7 per cent. The growth in steel production has halved, consumer durables manufacturers are groaning under a pile of inventories, and the topline of most of the fast moving consumer goods manufacturers is stagnant. Says B.B. Bhattacharya, Director, IEG: ''It is unlikely that the GDP growth will touch 6 per cent this fiscal.'' The tell-tale signs are already there. GDP, which grew by 7 per cent in the first quarter of 2000-01 has been falling steadily, and scored just 5.7 per cent growth in the past quarter. In fact, the International Monetary Fund (IMF) in its latest report has forecasted that India's GDP growth would slip from 6 to 5.6 per cent. Worse, if there are any major hiccups (read Sudden Spurt In Oil Prices, and Another Kargil Like War) in the economy, the growth rate could well dip below the 5.5 per cent mark. Notes Saumitra Chowdhury, Chief Economist, ICRA: ''The problem of poor industrial growth has been compounded by the fact that there is no growth in consumption expenditure.'' Are IEG and ICRA the lone swallow in a summer of slowdown? Hardly. While the finance minister's top advisor, Rakesh Mohan, may seem confident of a 6 per cent growth, the Central Statistics Organisation (CSO) is less certain. As per the index of industrial production, the rate of growth fell from 4.9 per cent in January 2000 to 2.8 per cent same month this year. In fact, the IIP figures for last year show that industrial grow at 5.4 per cent is less than half of what Budget 2000 had predicted. Exports, which galloped at 20 per cent in the 10 months to January 2001, will inevitably suffer with the US and Japan cutting back on purchases. Says B. Bhattacharya of the Indian Institute of Foreign Trade: ''My sense is that exports growth could fall to 10 per cent per annum.'' Credit offtake-a sign that industry is making investments-has been wallowing. Worried banks have parked 37 per cent of their funds in risk-free government securities, although the mandatory limit is only 25 per cent. Explains U.R. Bhatt, Director and Chief Investment Officer at Jardine Fleming: ''What this can also mean is that the banks may be averse to corporate lending, fearing a fresh accretion of non performing assets.'' Admits S.D. Narang, Chairman & Managing Director, Oriental Bank of Commerce: ''I am more apprehensive of big corporate houses than the priority sector, because the default rate is higher.'' All other key indicators (See The Coming Ebb) are down as well. With the savings rate down to 23 per cent from 30 per cent a couple of years ago, and FDI drying up, the much-needed funds to build India's infrastructure-the foundation of any robust economy-will be hard to come by. As Sinha might have learnt at the g-24 meet, the need of the hour is not defensive denial, but reformist realism. POWER Here are three ways to straighten up the Enron mess. Sure, the Dabhol Power Company has its parent Enron Corporation's OK to pull the plug on its $3 billion project in Maharashtra. And equally surely, its ailing customer, the Maharashtra State Electricity Board, can't afford DPC's tariff rates. Does that mean a costly stalemate for the two parties? May be, but it doesn't need to be so. BT paints three possible scenarios of resolution. Scenario 1: Renegotiate the PPA Maharashtra's Energy Minister, Padamsingh Patil, wants to renegotiate the power tariff. But that will mean DPC takes a cut in profits. The solution? In exchange for lower tariff, DPC be helped with capital restructuring (most of the loans are from Indian financial institutions), the local tax on fuel be waived, and the LNG project be spun off as a separate entity. Scenario 2: Enron Sells Out Much as the parent may want, selling out won't be easy. Reason? Nobody wants to take on a headache. For a buyer to be interested, the PPA will need to be renegotiated and DPC's capital restructured. But if that happens, why would Enron want to sell out? A distress sale to somebody like Reliance may be another option. Scenario 3: The GoI Buys DPC The National Thermal Power Corporation could always be ordered to pick up DPC if Enron fails to find a buyer or talks fail. For the GoI, there's a $2 billion, counter-guarantee liability it needs to avoid. But with only book profits to show (NTPC collected only a third of its Rs 19,220 crore billings last year), the utility may be hard-pressed to raise capital. Even if it does, the cost of debt will push up tariff. But as Oliver Blackaby, CEO of N.M. Rothschild & Sons (India), says, the option is really one: ''for everyone to chip in and find a win-win solution for everybody''. A perfect face-saving situation for Enron, GOI, and the ailing MSEB. -Ranju Sarkar INTERVIEW It's the largest money transfer agent in the world, conducting 90 million transfers a year, across 95,000 agents, in over 185 countries. With $2 billion in revenue, the 150-year-old Western Union, took a big step in enlarging its presence in India last month, when it tied up with India's Department of Posts to offer international money transfer facilities in the country. William D. Thomas, President of Western Union Financial Services International, spoke to BT's Bharat Ahluwalia. Excerpts:
Our operations in North and South America and Western Europe are fairly well developed. India, China and much of Africa are our areas of opportunity. We need to expand to new geographies. Naturally, because of the size of population, India and China are our main focus areas. We are starting off with 75 post offices right now. In three years, our services will be available in 3,000-5,000 post offices. Besides, we are already available in 275 towns and cities in India, through our partner travel agents and foreign exchange dealers. So far, how have your India operations performed? We came here six years ago and have seen a 40-50 per cent compounded annual growth rate. In 2000, we transferred $164 million to India, while in 2001, we should do $250 million. But that's not much considering that total remittances to India are estimated at $15 billion. We want a bigger piece of the pie. How do you intend to build your business in India? First, we want to make sure that we build our network in those areas of India-like Punjab and the southern states-where Indians abroad remit their money. We need to have a geographically dispersed service, so that we can service all communities across India. Next, we have to build awareness locally, so that people know how to use it. Then, we have to market ourselves to the Indian population abroad, so that Western Union becomes the preferred way to transfer money to India. We also need to identify current immigration trends, so that Indians who move abroad can use Western Union in the initial stages itself to transfer money. In fact, we've already spotted an initial trend of Indians migrating to Portugal. Who would you be competing against? We have hundreds of small competitors. They are usually those who specialise in transferring money from one specific location to another. But nobody transfers money like Western Union. We can transfer money to over 185 countries in the world.
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