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ANECDOTAL EVIDENCE THAT mid-sized companies are scaling up investment plans and hence resorting to increased bank borrowing only confirms what was suspected for some time now: That the Indian industry sees improved business prospects for the near term. This development is the next milestone in the process of Indian industry coping with increased domestic and external competition, post liberalisation.

When the Indian market began to be opened up in the early 1990s, there was fear that the domestic enterprises would be overwhelmed by overseas competition with their superior processes and resources. While there indeed were a few casualties early on, gradually large local outfits emerged from the shadows. Even as they talked about the need for the Government to level the field for them, these large enterprises also responded with greater customer focus, developed new products or incorporated improved features, cut costs and so on to not only stay afloat but also emerge profitable. They followed it up with fresh investments in capacity creation. In the event, the news that now mid-cap companies are committing resources for expansion should be seen as the second phase in the process of India Inc coping with the new paradigm of competition. Of course, a structural factor too has been at work. In the first euphoria of liberalisation, a large number of companies, big and small, had either diversified into new areas or expanded their existing lines. A flourishing IPO market and foreign institutional investor demand for Indian paper helped this process along. But capacities had expanded far more than what could be sustained by short-term growth in demand. The spell of drought in fresh investments in the recent years or the revival of investment interest now should be seen as a process of correcting the investment excesses of the earlier years.

The big question is whether this resurgence in investment demand will be sustained. No doubt, certain favourable factors are at work. Indian capabilities and cost leadership in a diverse range of fields are being recognised globally, and overseas enterprises are rushing to relocate segments of their global operations in India. Whether it is drug development or auto component manufacture, domestic businesses are becoming a crucial link in the chain of integrated global manufacturing activities. The bonus is the incremental demand for wage-goods that these enterprises spawn. It is no coincidence that foreign institutional investors are increasingly turning bullish on corporate prospects in the medium to long term.

The Government has a major role in sustaining the growth impulses in the economy. Private investments cannot exist in a vacuum. They need the support of complementary public investments in infrastructure. The Government must ensure this without adding to the level of public debt in the economy. How successfully it handles the emerging challenge would determine whether the positive signals present in the economy can be leveraged for lasting prosperity for the people.

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