The Hindu Business Line : Decoding the India Inc. boom

INDIA INC IS once again abuzz with news of surging profits and sales. Ever since the watershed of 1991, Indian business has seen at least three cycles of euphoria followed by depression, the most stressful being the 1998-2001 period. Despite past attempts to analyse what happened and why, the fundamental forces behind the cycles of business prosperity remain a mystery. And the question of how much difference management quality makes is yet wide open.

Until recently, any post-downturn investigation came up with two usual suspects: Acts of God (monsoon, floods, droughts, and so on) or acts of Government (adverse tax regime, dividend tax, reduction in import barriers, etc.). It is time these feeble and partial explanations were jettisoned. Juxtaposing the 2005-06 first quarter numbers with Dalal Street's recent exuberance, one is left wondering (like the centipede in the ditch when asked how it managed with so many feet) which leads and what follows. Corporate results reflect the past while stock prices are about how investors see the future, and the two need not run in consonance except in periods of sustained prosperity. Corporate results are the outcome of two factors — the internal capability to plan and manage, and those external factors which one might predict but never control, such as the world economy and commodity markets.

Fortunately, regardless of whether it was due to better management or circumstances, primary capital goods producers and heavy industry, especially steel, machinery, shipping, and chemicals, are at last looking up. This should restore faith in the manufacturing industry's role in the long-term strength of the Indian economy and help dispel myths that in back office operations, Information and Communications Technology, and financial services alone lie the country's future. We can never become a scaled up version of Singapore or Ireland, however much we admire them.

Nonetheless, one must correct the orientation of the industrial economists who still look too much to macro-analysis for insights. What is of far greater value to managers and chief executive officers is a sound theory of why some companies perform consistently better than others within the same industry, subject to the same worldwide forces. Depreciation rules, interest rates, and world prices only explain this partly. The country's manufacturing operations must succeed worldwide by better design, quality and tighter management of costs. A greater part of the explanation must, therefore, reside in the sharpness and inventiveness of the management and its ability, with some good luck of course, to sense opportunity ahead of others. Planners must seriously rethink the cherished, deterministic assumptions of traditional corporate planning. Clearly, not every aspect of an internationally linked economy can be deciphered sufficiently to work out sensible forecasts for the near term. Dampening as it may be to the spirit and self-esteem of the market experts, the country's ability to forecast industrial performance remains about as shaky as forecasting the distribution of monsoon rainfall.

Article E-Mail :: Comment :: Syndication :: Printer Friendly Page

Stories in this Section
Decoding the India Inc. boom

New `knowledge' and the farming community

New hope on German, French horizon

`Sin' tax: Damned if you do, damned if you don't

FDI needs micro-micro reforms

Primary capital: Mega issues, macro concerns

Coal to oil

Quarantine restrictions

Capitalism