Sustained growth in net profits and gradual increase in productivity and capital efficiency have enabled Indian Corporate Sector to cut costs and be globally competitive. This will drive future economic growth of India, said Confederation of Indian Industry (CII) in a Press Release issued here today.

The release was quoting an analysis of last 8 quarters of corporate sector results. The study conducted by CII revealed that corporate sector performance has contributed immensely to Indian’s macro economic fundamentals. The CII study is based on available quarterly corporate results pertaining to manufacturing, services other than financial services and financial services sectors.

The CII study shows that for the manufacturing companies, there has been a consistent reduction in raw material costs as a percentage of sales during the last 8 quarters by 1.3%, even while raw materials’ prices have gone up, reflecting greater cost competitiveness of the Indian manufacturing sector.  

Further, similar trends were observed by the CII study on power and fuel costs. In the last 8 quarters, while the power and fuel costs have gone up from the supply side, when measured as a percentage of sales, this has come down marginally by 0.1% of net sales from 2.3% to 2.2% over the same period, reflecting efficiency of operations especially in the manufacturing sector.

Similarly, manpower costs as a percentage of sales have also come down during the last 8 quarters. The manpower costs as a percentage of sales registered a decline of 0.5 % from 7.1% for quarter ending June 2006 to 6.6% for quarter ending March 2008. This inspite of increase in wage bill and in employment reflecting improving labour productivity in corporate India.

Increases in productivity and efficiency have contributed to improvements in net profits of Indian corporates. Net profit margin, measured as net profits as a percentage of sales, over the last eights quarters have increased from 8.8% to 9%. This is corroborated by the fact that corporate tax collections have increased consistently upwards and for the year 2007-08, the net corporate tax collections have grown by 32.1%, said the CII study.

Observing the corporate sector performance over the 8-quarter period and also the increase in corporate tax collections, the CII study has suggested that the micro trends that contribute to the macro fundamentals are strong. With robust corporate performance and consistent bottomline growth, there is a larger room for capacity expansion, and hence the trend of investment led growth of the Indian GDP would continue.

With higher Gross Domestic interest rates, increasing capex by private sector and healthy ICOR at around 4.0, the CII study states that India could record a GDP growth of about 8.6% during 2008-09.

These study findings come at a time when global slowdown, high oil prices, increasing WPI inflation and a tight monetary policy regime is casting a shadow on the growth prospects of the country. The CII study, while noting the silver lining in the clouds does however, point out that the business environment has to remain conducive for India Inc to deliver the desired results.

Timely implementation of GST, increasing public investment in infrastructure by unlocking government wealth in certain PSUs, removal of procedural hurdles for large investment projects to take off and keeping the overall tax rates moderate, as India is one of the highest manufacturing tax paying country in the world, would provide the much needed fillip to GDP growth.

It is worth noting that the CII has been asking for a phased implementation of the Rangarajan Committee Report recommendations on pricing and taxation of petroleum products, which it believes would ensure that the country would be able to better manage future oil shocks, and would ensure a more stable business environment.  

Sourced From: Confederation of Indian Industry