This is no ordinary slowdown

Normally, I avoid the use of the first person in this column. However, this time, I would request the reader’s indulgence to allow me to intrude into the column, since the example I would like to use is difficult to convey in the third person.

Last week, I caught up with an old friend of mine, one of India’s thousands of bright, talented managers who are powering the India Growth Story. He is currently the CEO of a medium scale developer. Usually cheerful and optimistic, this time around, he was unusually gloomy. “Another bad quarter or two and I think I will be out of a job,” he told me. “And this time, there are no jobs out there.”

That last statement was a bigger surprise, since I was under the impression that my friend was one of the fortunate band of Indians who would never have to worry about landing a lucrative position, leave alone just another job. After all, he was an IIT engineer, a management graduate from a leading business school, and someone who had rotated rapidly and successfully through several of India’s growth sectors — consumer products, telecom, real estate, and so on — and had followed the standard career path of the IIT/MBA cohort through middle and senior management to the corner office and the CEO tag by the time he hit his forties.

Policy paralysis

His was the kind of talent India Inc has been saying it is short of. I was under the impression that while the slowdown may be showing in the big picture numbers, it has little relevance at the individual, personal level to people like my friend, one of India’s best and brightest. But somewhere along the road from UPA-I to UPA-II, it appears, his personal career graph, and economy’s growth curve, have coalesced — on the way down.

The slowdown is no longer a slowdown for many, it transpired on further talk. It had become a very real, very punishing recession. The trouble is, amidst the clamorous din raised by scams and scandals, his voice, like the voice of tens of thousands of others like him, struggling to keep their businesses going — and growing — amidst increasingly difficult conditions, has been lost. Amidst the apparent obsession of politics and bureaucracy with ‘coal gates’ and ‘airport gates’, worries like the declining fortunes of iron foundries or underwear manufacturers is not getting any political or policy making bandwidth. Not that others with much bigger metaphorical lungs haven’t tried.

Housing lender Housing Development Finance Corporation’s (HDFC) widely respected chairman Deepak Parekh became the latest voice to join the growing chorus against the government’s ‘policy paralysis’. “You cannot continue to govern like this. All the deficit numbers, financial numbers will go crazy. You will be downgraded for sure,” he said in a television interview.

He is not alone. Everyone from CII President and Godrej Group Chairman Adi Godrej to Infosys founder N. R. Narayana Murthy to Wipro chief Azim Premji — all people who are currently managing to run globally competitive enterprises in India — have said virtually the same thing.

‘Self-inflicted’ challenges

Speaking to analysts after announcing Wipro’s results, Premji said, “We are working without a leader as a country. If we do not change, we would be down for years.” Infy’s Murthy, in an interview to investment banking firm Morgan Stanley, said India’s current challenges were “self-inflicted.”

Self-inflicted or externally perpetrated, the combination of virtual inaction on the policy front, and a very real slowdown in growth both in India and abroad, have inflicted serious damage on the economy. Forget the big picture numbers — the ever decreasing GDP growth forecasts, or the continued downturn in the Index of Industrial Production numbers — a drive around any industrial estate is enough to confirm this. The slowdown is still a slowdown for some, but for a vast majority of India’s real manufacturing backbone — the Micro, Small and Medium Enterprise (MSME) sector — it has long since turned into a very real, and very harsh recession.

Power deficit

Take a look at what, until recently, was a very thriving part of the MSME sector. Although there are a few big ticket players in the electrical and electronics manufacturing sector, the bulk of the participants fall in the MSME sector. Everything from the nameless pieces of electrical wiring to the switches and fuses of unknown provenance which your electrician pulls out of his toolbox, to electrical transformer and switching equipment in your colony, have been probably manufactured by one of the tens of thousands of small to medium scale manufacturers who populate this sector.

Now, for the first time in a decade, the electrical and electronics manufacturing sector has shown negative growth in India. According to numbers released by the Indian Electrical and Electronics Manufacturers Association (IEEMA), the apex Indian industry association of manufacturers of electrical, industrial electronics and allied equipment, for the first time since 2002, the Indian electrical equipment industry has seen a negative growth of 2.4 per cent in the first quarter (Q1) of the current fiscal (2012-13), compared to the corresponding period of Q1 FY12 (a growth of 13.82 per cent) and sequential quarter Q4 FY12 (a growth of 14.10 per cent).

Commenting on the Q1 FY13 results, IEEMA President Ramesh Chandak said, “Ironically in Q1 of FY13, there was over-achievement of the country’s power generation and transmission and sub-stations capacity addition targets. So, under ideal conditions, domestic manufacturers of power equipment should have correspondingly gained business, but reality is otherwise.”

That is because, during the same period, imports have more than doubled. So, while the Government appears to have finally woken up to the fact that unless India’s growing power deficit problem is addressed, whatever growth advantages the country has secured so far is likely to be lost and in spending money to try and salvage the situation, the benefits of this are going elsewhere.

India’s loss, China’s gain

In the case of the electricals and electronics manufacturing sector, it appears India’s loss has been China’s gain. China now accounts for 44 per cent of India’s electricals imports, says IEEMA. And imports from China in the power sector alone are growing by 59 per cent a year.

This is not news to anybody, of course, least of all, the government. After all, it did set up the National Manufacturing Competitiveness Council way back in September of 2004, to address precisely this issue. The Council has even come up with a national strategy for manufacturing competitiveness, and several other reports and whitepapers.

Clearly, those who are supposed to have looked into these suggestions, and acted upon them, have been occupied with other things. Which is why IEEMA members, and members of dozens of other industry associations like it, are facing a gloomy future. And why my CEO friend is gearing up to spend some ‘quality time’ with his family soon.

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