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ECONOMY Blood Toil, & Recession The Indian economy is facing a pincer attack--the economic slowdown and now the war clouds over South Asia. It's time the government dons the warpaint and battles those opposing reforms, argues Seetha
Duggal's battleground isn't in distant Afghanistan. It's right here in his plush first floor office in Delhi's Transport Bhavan, across the road from Parliament House. Thanks to the events of September 11 events and, now, the war, tourist arrivals tanked in the first two months of the September-March peak season. As it is, the economic slowdown had meant fewer travellers.
Across sectors, people are beginning to actually know what a double whammy is. Even as they were beginning to cope with the clouds of gloom over the economy (See The Bleak Scenario), they now have to contend with war clouds over the sub-continent. As US troops continue to comb Afghanistan for Osama bin Laden and as Indo-Pakistan tensions threaten to go beyond a mere war of words, the question on everyone's lips is: wither the Indian economy? Finance Minister Yashwant Sinha put it aptly: ''The situation we are facing is a difficult one. It was difficult even before September 11. Subsequent events have only made it more difficult.'' For starters, the early signs of recovery in the world economy have vanished. Industrial production in the US slumped to 5.8 per cent in September, the lowest since June 1983. And the Organisation for Economic Cooperation and Development (OECD) predicts that the economies of its 30 members will grow by a mere 1 per cent this year. With South Asia now a hotspot and India in the frontline of Laden's brand of terrorism, the commercial risk of doing business with India only increases. Reinsurers are already refusing terrorism cover for projects. Domestic investors, waging their own Battle of the Bottomline in a hostile industrial terrain, now have to cope with uncertainty about the duration and spread of the war (See Eco-Armageddon). Frets Rahul Mehta, President, Clothing Manufacturers' Association of India: ''The uncertainty caused by the war is worse than the recession.'' One can, he says, draw up strategies to meet a recession. How does one deal with uncertainty? It's too early to start counting the economic body bags. Or distinguish between the war casualties and the ravages of faulty domestic policies. But it's difficult to disagree with National Council for Applied Economic Research Chief Economist Subir Gokarn when he says: ''There is very little on the horizon pointing to a recovery.'' Battle-Scarred Sectors Some sectors have already been strafed. Hopes of the travel and hospitality industry (laid low by a paltry 1.4 growth in tourist arrivals in April-August 2001 compared to 8 per cent in April-August 2000) that things would look up in the peak season were rudely shattered. Arrivals dipped 10 per cent in September, shrinking tourism revenues by 12 per cent, to Rs 164,000 crore from Rs 182,000 crore in September 2000. October is expected to see arrivals plunging 20 per cent. A cris-infac study shows Delhi hotels alone have seen 32 per cent cancellations while the other metros averaged 25 per cent. Travel agents and tour operators are deluged with cancellations, ranging between 35 and 75 per cent. Delhi-based Stic Travels has lost close to Rs 40 lakh in just one month. ''We can absorb the losses, but several smaller operators could go bankrupt,'' says chairman Subhash Goyal. The aviation industry, too, is on a wing and a prayer. It has had to pass on the costs of increased security and higher insurance premia to its customers, depressing an already sluggish market. Post-war, traffic to South Asia has fallen. Companies refuse to share figures but Union Civil Aviation Minister Shanawaz Khan estimates that foreign carriers have logged a 20 per cent drop in traffic. Also in a blue funk are the exporters, though the government puts on a brave face. Commerce and Industry Minister Murasoli Maran won't scale down the export growth target of 12 per cent but, in a Freudian slip, says this will act as motivation. An unconscious admission, perhaps, that experts like Indian Institute of Foreign Trade Dean B. Bhattacharya are right in estimating that exports will not grow beyond 6 per cent? Director-General of Foreign Trade N. L. Lakhanpal is a mite worried but is confident of double-digit export growth. ''Unless the war continues beyond February,'' he adds quickly. Few share his optimism. The flood of orders that is normal around this time of the year has reduced to a trickle. Orders made before September 11 have been put on hold and some Christmas orders have been cancelled. Though the slowdown stifled growth across sectors, the garments and the gems and jewellery exports (accounting for 40 per cent of the export basket) were the worst hit. The industries are expecting worse to follow. With the war and the anthrax scare, points out Lakhanpal, spending sentiment is at its lowest. The gems and jewellery industry, which sparkled in 2000-01 with a 13 per cent export growth, has cut targets to a dull 5 per cent. The apparel industry is reconciling itself to a negative growth of 20 per cent, from a smart 12 per cent last year. There have been no orders after September. Rues Raju Goenka, Chairman, Apparel Export Council of India, ''With the war-like situation here, buyers are no longer coming here to see our presentations and place orders.'' With little foreign or domestic investment expected because of the increased risk profile, the woes of the financial sector will only increase. Shanti Ekambaram, Executive Director, Kotak Mahindra Capital, sees the pain in the initial public offerings (IPO) market getting extended and cross-border mergers and acquisitions slowing down. Indeed, there are only three IPOs worth Rs 8 crore awaiting approval of the Securities and Exchange Board of India (SEBI) and 35 companies have let their SEBI approvals lapse. Says Gokarn: ''As it is merchant bankers were dropping like flies; the current situation will only push many more over the brink.'' 1 | 2 |
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Director-general
of tourism Vinay K. Duggal is in a whirl. He's just finished a meeting
with R. Krishna Kumar, Managing Director of Indian Hotels and has to field
Q&As from three journalists before rushing off to another. Much of
Duggal's waking hours has been spent in meetings of the 15-day-old Special
Tourism Development Task Force; in cajoling the travel, hospitality and
aviation firms to design package deals for tourists; and in readying a
marketing and advertising blitz targeting tourists from Australia, South
Africa, Southeast Asia and North Asia, them tourists India is a safe
destination.
Tourism:
