The Hindu Business Line : Scripting a revival

Hope springs eternal in the human breast and never more so than when troubles pile up alarmingly. For India, the three months to December 2008 were distressing as almost every indicator reflected a downturn in varying degrees. Yet, there have been some signs of revival; if not to previous robust levels at least enough to signify a reversal in the downtrend. It began with offtake of cement and steel and then, capital goods registered a similar pick up from December. Now som e early corporate results bear similar trends though for entirely different reasons. And that is certainly good news.

Results of some 715 companies barring banks and financial institutions show profitability rising 23 per cent over the last quarter despite sales declining by a little over 7 per cent. The reason for that reversal from December lies in some fortuitous circumstances and deliberate strategising at reducing costs. While the decline in raw material prices and the steady reduction in interest rates helped the firms, equally important was the rationalisation of power and fuel usage and in the case of some IT firms, trimming of employee expenses. Another study of 150 companies also confirmed reduction in employee costs for a third of the companies although in another third wage bills rose but marginally over the corresponding quarter of 2008. Some more pleasant surprises come from the auto sector where car and two-wheelers witnessed robust sales for the fourth month this year. At another remove, IT firms are innovating on their feet to retain clients by adding on services and reducing costs. Recently, some multi-million dollar deals have been signed by TCS and Wipro, both of which have also pruned travel overheads, and HCL Technologies; such deals may not augur a break in the dark clouds but do suggest a staying power in firms that innovate, tighten waist belts and hard sell. Yet not all is well; exports have declined 33 per cent in March on weak demand from developed markets and the situation is not likely to improve for merchandise goods in the next two quarters either. While it would be premature to read a general recovery in those reversals in profits and sales they could provide a road map for further action by the Government to expand its possibilities.

The upsurge in auto sales has occurred mainly on account of the pay commission awards. But that will not help private companies across the board recoup markets lost with slipping demand. The Government must ensure that the massive doses of public spending create commensurate increases in employment and demand for a wide spectrum of goods, for that will certainly create conditions for a sustained recovery.