Opinion Caution as an SOS

The cautiousness of corporates is borne out by both empirical and anecdotal evidence; loans to the infrastructure sector which were growing at 50 per cent levels in August last year are now climbing at a rate of closer to 25 per cent,of course on a higher base. Bankers will tell you that most of the current disbursements relate to loans sanctioned earlier and that applications for new projects are few and far between. The deceleration has been sharper in sectors such as power,where the lack of fuel linkages,lower-than-anticipated merchant tariffs and the precarious state of finances of the state electricity boards (SEB) — combined losses estimated at some Rs 60,000 crore — are cause for concern. Loans to this space are now growing at just about 35 per cent compared with 50 per cent late last year. Again,order flows at engineering firms were rather muted in the June quarter.

Heavyweight BHEL could not bag a single meaningful order from the power sector because of which inflows crashed 77 per cent y-o-y while orders at Thermax dropped 19 per cent y-o-y. New orders at Siemens too increased at a subdued pace,showing an increase of 10 per cent at the end of June. So it’s not exactly raining orders and while the Larsen & Toubro management says it is confident it will see new orders grow 15-20 per cent this year,analysts are not buying it; the shortage of key fuels together with a general disinterest on the part of managements to add to capacity just yet,they say will continue to hurt orderbooks. Crompton Greaves’ profits crashed 58 per cent y-o-y driven by the poor show at its international subsidiaries. Since January this year,the Sensex has come off by 18 per cent while the BSE Capital Goods Index has lost 22 per cent; since its Diwali highs,the Sensex has given up 20 per cent while the CG Index has yielded 28 per cent.

That’s not surprising because,while the rather hazy outlook for the global economy has left companies cautious,the lack of clarity and delays on the policy front back home have also stymied investments. For instance,the Mines and Minerals (Development and Regulation) Bill is an important piece of legislation that needs to be enforced; a uniform goods and services tax (GST),while not directly related to capital expenditure,will make life much easier for industry. The good news is that the Land Acquisition and Rehabilitation and Resettlement Bill has been introduced in Parliament; getting land to set up a project has been among the biggest hurdles for industry. So reforms need to be fast-tracked,but more than anything else,the government needs to make sure that the environment is conducive to investing. In this context,high interest rates in the home market are also keeping corporates from planning new ventures but that trend is unlikely to change in the immediate future since inflation is nudging double digits and it’s almost certain that the central bank will hike policy rates by 25 basis points when it meets next week. The capital markets too are virtually inaccessible just now and with risk-aversion rising globally,it’s unlikely foreign flows into the Indian equity markets are going to be meaningful in the near term. More than anything else though the government needs to convince Indian industry that it will push through legislation and be less bureaucratic. That itself would go a long way in boosting industry’s morale.

The writer is resident editor,Mumbai,‘The Financial Express’
shobhana.subramanian@expressindia.com