Atal Bihari Vajpayee: He's up, up, and away, but the economy is still gnu

He's said it twice, and this time he means business. In January 2001, Prime Minister Atal Bihari Vajpayee mentioned the 8 per cent growth target for the Indian economy for the first time. A year and eight months later, he repeated the number at a Planning Commission meeting called to decide the growth rate goal of the Tenth Five Year Plan (2003-2008). This will, he reckons, reduce poverty, increase employment, and meet the country's other assorted economic and social objectives. The pm's stretch target may well be part of his strategy to blunt the arguments of anti-reformists, but in purely numerical terms, it is unrealistic.

India's growth record is hardly inspiring: the economy (GDP) grew by 4 per cent in 2000-01, 5.4 per cent in 2001-02, and is expected to grow, according to estimates of the National Council of Applied Economic Research, at 4.8 per cent in 2002-03. The International Monetary Fund is a trifle more generous with its estimate of 5 per cent, still a long way from 8 per cent. ''Achieving a 8 per cent growth in the next couple of years is in the realm of wishful thinking,'' says Navin Aggarwal, Head, Institutional Finance, Motilal Oswal Securities. ''We would be lucky to grow by 6 per cent.''

No one is quite sure where Vajpayee got the 8 per cent figure. The Indian economy hasn't grown at anything like that pace in the past decade. The closest it came was the 7.8 per cent it did in 1996-97, largely a result of the 9.6 per cent growth in the agricultural sector that year.

To register a GDP growth of 8 per cent, the agricultural sector would have to grow at 4 per cent, the industrial sector, 7-8 per cent, and the services sector 8-9 per cent. None of this seems possible given today's conditions. ''Agriculture holds the key,'' says Subir Gokarn, Chief Economist, Crisil. Not just because 67 per cent of the population depends on the sector for its sustenance, but also because of its strong links to industry. There is little hope there in the absence of land reforms and the government's reluctance to countenance the corporatisation of agriculture.

The Indian economy is also perilously close to a debt trap, with the fiscal deficit projected to touch 6.3 per cent this year. Money that can otherwise be spent in developmental activities-necessary to put the economy on the 8 per cent path-will go towards meeting interest payments. The disinvestment process is on hold, and the exchequer will have to do without the little succour its takings would have brought. The status quo on FDI (Foreign Direct Investment) limits in insurance, banking, and telecom could hamstring the services sector some. And with labour reforms proving a non-starter, power sector reforms scotched, and financial sector reforms proving inadequate, the industrial sector is unlikely to be an outperformer (See The 6.7 Per Cent Mirage). Irrespective of however many times Vajpayee says it, a growth of five to six per cent it is for the Indian economy.

-Ashish Gupta

LEADER-II
Let's Flog It!
Companies respond to the first signs of a revival in the consumer durables market by upping their promotional spends. How predictable.

Quick, why are consumer durable companies upping their promotional spends at a time when demand is on the rise?

a. They want to take no chances
b. They are too lazy to think up new marketing strategies.
c. They've grown used to promotions
d. They want quick results
e. All of the above

Call it what you will, but consumer durables marketers are betting on promotions, the growth elixir recommended by textbooks, to keep the cash till ringing this festive season. After all, didn't these buy-and-get schemes work wonders during the slowdown in the Indian market these past two years? The only difference in contexts is a factoid hidden in research firm ORG-GFK's retail audit figures: with the singular exception of washing machines, the consumer durables market has grown 8-10 per cent in the first eight months of 2002. And a countrywide survey of consumer confidence by Indica Research (See Why Do We Feel So Bad?, BT, September 29, 2002) shows that most consumers are predisposed to buying a consumer durable, even two.

What better time, then, to break out a new marketing strategy? Sadly, the Rs 15,000 crore, 18-20 million units a year, consumer durables industry doesn't think so. Maybe it's the realisation-one reinforced in 2001, when markets for televisions, music systems, washing machines and refrigerators declined-that money spent on advertising takes a few years (five, say some mavens) to pay off.

That's not the case with promotions; they promise instant gratification, to buyer and seller alike. ''Even when overall sentiment is up, consumers expect a free gift,'' says R. Ravi, Head (Sales), Godrej Appliances, which has increased the promotional-spend on its range of refrigerators and washing machines 30 per cent. Nor is the company alone: Samsung India has launched a sequel to its successful Phod Ke Dekho (Break And See) campaign with Phir Se Phod Ke Dekho (Break And See Again). And the other aggressive Korean player, LG, is reported to be planning a biggie.

Most companies have little choice but to keep the promotions going. ''Everybody is afraid of losing marketshare,'' laughs Rajeev Karwal, Senior Vice President (Consumer Electronics), Philips India. ''We will, however, do limited promotions just to whet the consumer's appetite.'' Whirlpool of India and Electrolux Kelvinator believe in the same approach to promotions. Mega-schemes are a strict no-no, but both companies are open to tactical region-specific promotions, even aggressive dealer-led ones.

Marketers have ready excuses for running promotions: Samsung is a growing brand and can't do without promotions; Godrej is a brand on the comeback trail and needs promotions; and the others just need a promotion or two to stay relevant in the marketplace. Ultimately, says Anand Bharadwaj, Executive VP (Marketing & Marketing Services), Electrolux Kelvinator, ''freebies are just a means to get to the consumer.''

Real product innovations that help grow categories or honest-to-goodness pricing are the losers in the mad rush to do a promotional scheme that is one better than the competition's. True, some companies will laugh all the way to the bank this festival season (October to January), but they could be faced with pedestrian growth once the schemes (and the festivities) end. What then? Why, they'll probably launch another big promotion.

-Shailesh Dobhal

AANOREXIA
The Rs 65,000-Crore Question
The first six months of the fiscal haven't been soft on market valuations.

Rs 511.81 crore-that's how much market capitalisation the Sensex scrips lost every trading day in the first six months of this year. FMCG major hll bore the brunt of the meltdown: its market capitalisation plummeted to Rs 38,000 crore, a fall of Rs 11,853 crore since April 1, 2002. Along the way, it lost its position on top of the heap to ONGC, the only company in the top 10 that saw its market capitalisation rise in the past six months. The rest was a swathe of grey: Wipro lost Rs 8,341 crore of market value; and HPCL's market capitalisation nearly halved from Rs 10,603.06 crore on April 1 to Rs 5,698.78 crore on September 30. Thank Messrs Naik and Fernandes for that.

-Roshni Jayakar

SEZ WHO?
Another Dream Dies
Commerce Minister Murasoli Maran's Special Economic Zones dream comes crashing down to earth.

The Shenzen SEZ, China: Maran wanted to do a me-too in India

It took just two years for Commerce and Industry Minister Murasoli Maran's dream of taking India to export greatness by emulating the Chinese model of Special Economic Zones (SEZs) to die. The Union government may have laid the ground for the creation of the zones-it has cleared proposals for 13, including the conversion of four existing Export Processing Zones (EPZs) into SEZs-but the states where these zones are located are refusing to play ball.

While the Nanguneri SEZ in Tamil Nadu is simply the victim of political one-upmanship-it was cleared post haste by the DMK Government, and the ruling AIADMK Government wishes to spike it-the Positra SEZ in Gujarat has fallen victim to the state government's inability to clear the 60,000 acres of land required. Positra Port Infrastructure has utilised the 27 months it has spent waiting for the land well: it has invested Rs 126 crore in the project, achieved financial closure, tied up investments of Rs 5,700 crore, convinced 110 companies to set up offices in the zone, and roped in Singapore PWD, the Singapore Government arm that built Changi Airport to design Positra Airport. The Commerce Ministry can do little but wring its arms in despair. ''Land acquisition is a state subject and there's little the Central Government can do about it,'' says D.K. Mittal, Joint Secretary, Ministry of Commerce and Industry. With the other SEZs still blueprints and Nanguneri and Positra scotched, India will have to wait a while for its own Shenzen.

-Ashish Gupta

INC PLOT
Two Oil Companies And A Fantasy
Just what lies in store for the state-owned oil monoliths HPCL and BPCL? Here's an intelligent guess as to what the government might do with the two companies.

What will be the fate of the two state-owned oil companies-Hindustan Petroleum Corporation Ltd (HPCL) and Bharat Petroleum Corporation Ltd (BPCL)? Apart from becoming a test case for the economic reforms programme and a convenient political rallying point, everybody, including a former sports minister, has an opinion about what should be done with them. But let's scrape away the rhetoric-and that includes the prime minister's heroic statements about his government's commitment to reforms-and look at what could really happen to the two oil companies.

First, you can safely expect the government to go ahead with divesting a part of its stake in the two oil companies. Also, the public sector players in the oil and gas sectors-namely, ONGC, GAIL, and oil-will be allowed to bid for stakes in the two. Make that ONGC and GAIL, really, because oil doesn't really have the moolah to do anything like that and only the other two have balance-sheets that make them eligible for buying stakes at what will predictably be hefty prices. And, of course, there will be the private sector bidders-domestic as well as transnational. Actually, there's just one domestic player in the running-no prizes for guessing who that is-because there's no one else who's really interested in the sector. One other player, which purportedly may still be, is Essar Oil, but five years after it started building it, its proposed refinery is still non-existent. As for the transnational players, the list of suitors include Shell, British Petroleum, and Malaysia's Petronas.

Now for the fun part. Who will get the two-BPCL and HPCL? Yes, I'm going to do some fantasising, so hold on to your seats but don't worry, there'll be some method in the madness. Take HPCL first. Widely believed to be the first to sell a strategic stake, HPCL has a government stake of 51 per cent, of which the government would, in all probability, sell 26 per cent. Who's going to get it? My bet: ONGC. Here's why. First take a look at India's oil exploration giant's future plans and how it is trying to get there. Recently, ONGC bought a 37.39 per cent stake in Mangalore Refinery and Petrochemicals Ltd (MRPL) from the Birlas and it is now trying to acquire another 26 per cent in the company from HPCL, which holds 37.5 per cent in MRPL. Now, with MRPL, which has a refining capacity of 3 million tonnes, in the kitty, it could logically make great sense for ONGC to scoop up HPCL too. With its fat balance-sheet (it has a net worth of Rs 29,511.84 crore) ONGC won't have much trouble paying for a 26 per cent stake in HPCL. But the clincher is that HPCL's 17 million tonne refining capacity, taken along with MRPL's 3 million tonnes, is a good strategic fit for ONGC, which has a crude output of around 26 million tonnes annually.

And BPCL? What of it? It has a refining capacity of 17.4 million tonnes (if you add capacities at its two subsidiaries), its 4,489-strong network of retail outlets hogs prime sites and it is certainly the better managed of the two. Contenders like Shell, BP, Petronas, and Reliance will all make a go for it. Who'll get it? Sorry, I'm not going to stick my neck out on this one (even though, as I've told you, this is mere fantasising that we're doing here). There's a reason for that. The BPCL divestment, when it happens, probably won't be a plain vanilla one. Because the government holds not 51 but 66 per cent, the route most likely to be chosen by it will likely be an IPO, where 25 per cent could be offloaded, followed by a strategic sale. That's when the analysts will get into the act, due diligences will begin and the real fight ensue. Expect a fierce fight over this bone.

-Sanjoy Narayan