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TRENDS: LEADER Crying Wolf! All's not as well as it could be on the economic front, but collective hysteria about how bad things are could actually make them worse.
Minor tragedies concerning employees being laid off, capacities being cut, software companies declaring modest results, and financial imprudence play themselves out, every day, against the broader backdrop of an economy teetering at the edge. Disinvestment minister Arun Shourie, perhaps stung by his inability to execute his brief, got nice and Dante-esque about it. ''If we don't act now,'' he is reported to have said, ''we will shuffle into an abyss, the depth of which we don't know. The minister got that right: the Indian economy isn't in recession (at least, not yet). The US has a clear definition of recession: the economy can be considered to have lapsed into one if it reports negative growth in two successive quarters. India has no such definition, although economists have a ready rule of thumb that says the economy is in recession if it registers a rate of growth lower than the average growth achieved in the previous 10 years. Going by that, the economy will have to grow by less than 5.5 per cent to be in recession right now (2001-02). No economist has said anything about the economy going sub-5.5, but there's enough explanation for the panic around us. The capital goods sector, one rough bellwether of the state of the economy, registered a negative growth (-2.1 per cent) in the first two months of this financial year (by June, growth was down to -7.6, the worst in the last three years). But as Shashank Bhide, the Chief Economist of the National Council of Applied Economic Research believes, the state of the capital goods sector is no reason to assume the economy is in recession. ''A recession would mean a decline in output in virtually all sectors of the economy. That's not happening.'' S.S. Bhandare, an advisor to the Tata Group agrees with Bhide: ''At the macro-level the economy doesn't seem to be in recession. But sectoral-recession may have set in.'' Throwing their weight behind such thinking are other economists who consider that even a sub-5.5 per cent growth, say, 5.2 per cent, isn't sign of a recession. The economy, this school of thought argues, would still have registered a growth. Bad times do have a record of producing such contrarian perspectives that link larger economic phenomenon to business- and consumer-confidence. Circa 2001, there's enough reason to worry: political uncertainty, an imminent crisis in the financial sector, the GoI's continuing failure to push ahead with its privatisation agenda, and the country's poor showing at the FDI-hustings. There's also enough logic not to: the monsoon, that litmus of the rural economy, has been good, the country's foreign exchange position (reserves of $44 billion or Rs 2,06,800 crore) has never been better, and the services sector promises to grow by over 7 per cent this year. Maybe if you go out and buy that second car, or place a call to your stockbroker you'll start feeling better. Maybe the economy will too. By Ashish Gupta POLICY
Wait, there's more. The Indian Ports Trust Act will be amended to allow the corporatisation of ports, multi-state cooperatives will be allowed to tap the capital markets and the Negotiable Instruments Act will be tightened to make life tougher for those who issue cheques that bounce. There are some five lakh cases pending all over the country and few offenders have been brought to book. So why isn't India Inc. popping the champagne? Because, unfortunately, some of the Bills are flawed. The Companies Bill, for example, makes it mandatory for sick companies to be referred to the new National Company Law Tribunal (NCLT). The NCLT will handle all matters now being done by the Board for Industrial and Financial Restructuring (bifr), the Company Law Board and the High Courts. So, explains Kishore Soni, CEO, Sircon, it will immediately be flooded with the around-20,000 cases pending before these bodies. And mandatory reference will mean another 7,000-odd cases being added each year. Speedier exit for companies? Forget it. Or take the Electricity Bill. Sure, it will finally release the power sector from the shackles of century-old laws. But the Independent Power Producers' Association of India-going purely by the draft Bill-finds provisions relating to the powers of the Electricity Regulatory Commissions (ERCs) draconian. The ERCs will determine trading margins of electricity traders. ''It'll be difficult to privatise distribution in such an environment,'' says IPPAI president, Harry Dhaul. And industry is a mite worried about how the Competition Commission of India will regulate monopolies. Minor quibbles apart, industry is certainly hoping the government maintains this tempo. Will the sarkar oblige? Policy Watch
INTENSIVE CARE UNIT Prevention is better than expensive palliatives. It's a lesson the finance ministry has learnt the hard way. Alarmed by the number of banks and financial institutions running to it for bailouts, North Block has decided to drum them back into shape. So, as soon as Allahabad Bank reported a 42 per cent dip in net profits, and Punjab and Sind Bank a 40 per cent fall, they were put on a 'watch list'. The ministry will now monitor the performance of these banks closely and restore them to health. With bitter pills, if necessary. SELLING BRAND INDIA
Dour diplomats as aggressive salesmen? Yes, that's what the Ministry of External Affairs wants. So, instead of merely skirmishing on security issues, Indian envoys have to pull in the greenbacks, routing foreign investment applications for the Foreign Investment Promotion Board's clearance and monitoring the progress of projects till the implementation stage. The mea is also picking the brains of people like Infosys chief N.R. Naryana Murthy, FICCI secretary-general Amit Mitra, and CII dg Tarun Das, with three advisory groups on energy and environment, world trade and related issues, and technical and economic cooperation. Babus are not welcome. ''We want a frank and critical opinion,'' says foreign secretary Chokila Iyer. Three Takes On The Sensex In September
SEPTEMBER SENSEX: 3,392-3,492 Doshi does not expect things to look much better in September. ''The Sensex will be between two and five per cent higher, '' he says. However, he expects things to change in October when companies declare their q2 results, and when the full impact of the monsoon finally become known.
SEPTEMBER SENSEX: 3,250-3,400 Nagpal is another monsoon-watcher. He doesn't expect any immediate change in the Sensex, as ''the market is still looking for positive news.'' There's nothing to worry, he adds, for, ''the markets have already discounted bad news.'' Still, Nagpal believes the rain could make all the difference.
SEPTEMBER SENSEX: 3,200-3,700 Band doesn't see the markets going anywhere. Reasons? They are dependent on foreign institutional investors who may not invest more when the US economy is in recession; and constructive government policies are rare. But, ''on fundamentals, the markets are cheap,'' admits Band.
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There's
no running away from the gloom. Dressed-to-the-nines CEOs make an
appearance on the tube to tell us how bad things are; the stockmarkets
remain somnolent; and the front pages of most financial newspapers read
like badly written dirges.
It
should have seen corporate India rejoicing. After months of walking around
in a dazed stupor, the government finally became hyperactive, pushing
through several long-awaited economic legislations. In the government's
out tray are-hold your breath-the Competition Bill to regulate monopolies,
and the Electricity Bill to energise the power sector, the Companies
(Amendment) Bill on insolvency law, and the Convergence Bill to regulate
the converging sectors of broadcasting, communication andinformation
technology.
