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India's industrialists lead
recovery
By Anil Sharma
JAIPUR - Industrialists in India are a happy lot
at present. After a sluggish two-year period there are
encouraging signs of a modest recovery in the economy.
Industrial production rose 4 percent in June
2002 against growth of 2.6 percent in the same period
last year, exports are rising and the business
confidence index recorded a gain of 9.3 percent in July
this year over the previous round last year.
"The signs are slowly but surely pointing to a
recovery in the economy, which could provide room for
better corporate profitability in fiscal 2002-03," says
M M Mehrishi, a professor of economics at a Kolkata
management institute.
And his optimism appears
to be not entirely unfounded. A 5.5 percent growth in
six core sectors - crude, petroleum refining, coal,
steel, cement and electricity - in the month of May 2002
against 1.7 percent a year ago has raised hopes of
economic revival. The growth was driven by increasing
demand for steel and cement.
According to data
released by the commerce and industry ministry, cement
output grew an impressive 9.7 percent in May to 10.28
million tonnes and steel recorded 6.6 percent growth to
2.66 million tonnes, while coal was up 4.9 percent to
25.8 million tonnes. The refining sector grew by 8.2
percent. Electricity output during the period was 44.26
billion kWh against 43.34 billion kWh in April.
The six core infrastructure industries account
for nearly 27 percent of industrial production. Quick
estimates of the Index of Industrial Production for
April 2002 put out by the Central Statistical
Organization show that the general index stands at
165.3, higher by 2.9 percent compared to April 2001.
According to an Indian Chambers of Commerce and
Industry business confidence survey, over 71 percent of
respondents from 403 companies were optimistic and
opined that overall economic conditions would improve in
the next six months. Over 75 percent of the companies
projected sales to be higher and 59 percent expect
profits and exports to go up. After analyzing first
quarter results (April-June 2002) of 502 companies, the
FICCI said that corporates had increased net profits by
19.24 percent and sales by 13.14 percent.
Confirming a sustained upturn in the economy, a
survey by the National Council of Applied Economic
Research (NCAER) has found that the business confidence
index recorded a gain of 9.3 percent in July this year
over its level of 93.6 in the previous round.
According to the NCAER, the index's gain in the
July round of the business expectations survey is not an
isolated sign of revival of industrial activity. Though
signs remain mixed and are now clouded by the delay in
the onset of the monsoon, April and May saw improvements
in industrial growth, non-food credit advances and tax
collections.
Although the index of industrial
production is around 2.7-2.8 percent, NCAER predicts 6
percent for 2002-03. The NCAER, however, is likely to
cut its estimate for India's gross domestic product,
GDP, for the year from 5.5 percent. NCAER is expected to
come out with its official outlook for the Indian
economy at the end of August. Economists, however, have
revised their GDP forecast to 4.6 percent from 5.5
percent due to the drought, which could also see
agricultural growth dip from 3.5 percent to 0 percent,
which would negatively impact GDP by 0.7-0.8 percent.
"The corporate sector is showing signs of a
modest growth in demand," says J P Saxena, a trade
analyst. Saxena said that 675 companies had reported a
sales growth of 11.36 percent and a healthy 36.67 jump
in net profits for the quarter ended June 2002. In
industry segments, sales and profits of pharmaceutical
companies grew robustly. The other industry segment
whose profits burgeoned was the man-made fiber
manufacturing sector, while automobile ancillary
companies, too, did well. A recent report underlined the
positive outlook for the Indian information technology
industry. India's IT growth slowed to 32 percent from 60
percent in 2001, but is expected to hold steady at a
compounded annual growth rate of 30 percent, the
International Data Corp said in a statement. It expects
the market to firm up and the industry to grow to a
revenue of US$46.2 billion in 2006 from $12.9 billion in
2001, indicating more than three-fold growth.
The growth of exports in April was about 18
percent, and in May it was less than 5 percent. For both
the months combined, it was 10 percent on average,
Saxena said. Last year, there was a decline in
industrial activity. There was zero growth in exports.
This year the picture looked rosier, he added. "I expect
8-10 percent growth in exports during 2002-03," he said.
Mehrishi said that interest rates were expected
to go down with a downward thrust in lending rates,
which would enhance the feel-good factor in the economy.
The investment scenario looks brighter, with the
government's disinvestment program sending a positive
signal. Government-owned hotels are being privatized,
the zinc major Hindustan Zinc has undergone divestment,
as have Videsh Sanchar Nigam Limited (VSNL), an
international telecommunication service provider and
Indian Petrochemicals Corporation Limited (IPCL), and
many more are up for sale later this year.
Also,
some important initial price offerings (IPOs) are due to
hit the market soon, with the amount mobilized from the
primary market tipped to reach Rs 300 billion (US$6.2
billion). This is compared to the little over Rs 10
billion raised last year. Union Bank of India's (UBI)
IPO will be launched on August 20 while Canara Bank is
likely to enter the capital market some time in
September. Rural Electrification Corporation, a
government-owned company, has also drawn up plans for an
IPO in this calendar year, while oil major Bharat
Petroleum Corporation, among others, is preparing for
its IPO.
(©2002 Asia Times Online Co, Ltd. All
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