Time to wake up, fix our problems

Over the past few years, there has been a clear shift in the economic order of the world. The powers that were once very strong are going through tough times today. Emerging economies are proving to be stronger and more resilient, indicating a shift in the centers of dominance in global economic play. The new Asian economies and BRIC countries are becoming more important and powerful and their growth story is being driven by the large-scale consumption they can boast of and the ‘demographic dividend’ in certain cases like China, and now, India too. Things are looking positive for these new emerging economies now and they will continue to be so if the process of unleashing growth and policy reforms moves forward in a progressive manner in these countries. Investments in critical areas like infrastructure must continue and the growth engine must be continuously revved. Over the last few years, countries like India, China and Brazil have benefitted from these changed global dynamics. On the other hand, economies like the US and Europe have seen unprecedented turmoil. The markets and economies of the latter category of countries have not settled yet from the growth slowdown and demand pattern shifts.

Changing dynamics

Further, there are two factors we need to understand in the current context. Today, world markets are changing very fast. Earlier, the same change would take years; now it takes just a few months or even weeks. Things are highly dynamic in the global scenario and one can’t escape that. Secondly, interdependence among markets and economies is very high. Thus, what happens in the US or Europe will affect India whether we like it or not. This interdependence also plays a major role in currency volatility and becomes a huge factor in determining success of international trade. Fortunes swing that much more as everything is so interconnected and predicting cash flows or growth is that much more difficult.

When I look at the next few years, I feel India has a golden opportunity to emerge among the top performing economies of the world. Reforms of the past that have shaped the current growth and consumption story have put us in good stead. Over the next 15 years, India is going to have the largest youth population in the world—the highest in terms of percentage of youth population to total population and among the top three globally in terms of total numbers. This demographic dividend can help increase productivity and consumption and can put us in a position where there could be a ripe platform for nationwide growth.

India, thus, could probably be the fastest growing economy in the world by 2015. However, in the last few months, there has been a general feeling that we are missing the bus. This sentiment should not become so strong that we reach a point where we feel that we have missed the bus altogether. There has been a major decrease in overall growth with GDP growth slowing down to sub-6 percent, skidding IIP numbers and declining global investments into India. Various factors like a lack of transparency, insecurity regarding tax regulations, lack of consistent reforms, etc. are playing a role in creating a negative sentiment about India as an investment destination globally. A weakening rupee and a poor currency outlook are not helping in any way either. On the domestic front too, sentiment has turned negative and demand as well as investment have slowed down.

The need for speed

The need of the hour is swift decision-making and a flurry of actions by the government such as key reform and policy announcements. If the current scenario doesn’t change soon, it can put us off track from the growth story the nation has been trying to build. There is a dying urgency to accelerate the country’s engine of growth. This can be achieved by looking at various factors like interest rates, investment in infrastructure, creation of new jobs and bringing in foreign capital to boost various sectors. The most important factor here is the prevailing interest rate; cost of capital is often the single-most important criterion influencing growth in an economy. We have to go from a vicious cycle to a virtuous cycle of growth in the near term; it’s time we started fixing our problems!

The people at the top and our leaders understand this well, but they are living with their own set of political compulsions. There is an immediate need to revamp investment in infrastructure projects and create new jobs. This will help the growth story roll ahead. And this is important for us to stay on track in the long term, otherwise India’s dream of becoming an economic superpower may remain just that-a dream! This doesn’t mean we ignore social problems. We need to balance social and economic growth and not overlook any one area to move forward in a healthy and holistic manner.

However gloomy things may seem, all is not lost. We have to keep the growth story going and for this, we must invest in our leaders as good leadership is a must in tough times. In the prevailing Indian scenario, there are many entrepreneurs nurturing dreams of starting out on their own and building value in some way. They have many ambitions and desires. If the environment is not conducive enough and they are not allowed to bring their dreams to life, it may lead to a huge social unrest among the people.

Rough ride for auto

As far as the auto sector is concerned, it is a cyclical sector going through a rough patch right now. The commercial vehicles category is dependent on the movement of goods in the country and that is further dependent on the economic growth and movement. The commercial vehicles scene is looking bad right now and it needs to be perked up for sure. Coming to personal vehicles, the current high interest rates are prohibiting sales and the overall slowing down of the economy is not helping either. As you go up the ladder, luxury cars become more of a status symbol than a necessity. But spending is cautious in the present market. Lastly, the impending slowdown in the domestic market is forcing industry players to refocus on export markets. The currency situation will also play a role in determining future strategy. However, more auto sector players are evaluating newer Asian and international markets to balance out the impact of the potential Indian slowdown. Looking ahead, the auto sector is going to have a dulldemand overall. Maybe things will start changing and looking more positive when the next elections are round the corner in 2014. Right now, we are worried as the medium term looks bleak for the sector.

At Kinetic Engineering, we are adopting a three-fold strategy for the next three years. Firstly, under our joint venture with the Mahindra Group, we have rolled out scooters and will now come up with motorcycles under the Mahindra Two Wheelers brand. Secondly, we are going to build and scale our automotive systems business. And thirdly, we will strengthen our focus on the real estate and infrastructure business. In conclusion, I remain an optimist and look forward to a bright future for the nation and our group.

(As told to Bindi Shah)

© Entrepreneur India September 2012