Alert: India's economy is slipping; exert more prudence | SupportBiz


Alert: India's economy is slipping; exert more prudence

The biggest problem in India, where GDP growth rate could fall to a decade low this fiscal, is that government policies do not support local industry.

The manufacturing sector must, therefore, exercise prudence and manage cash flows wisely in the short term, according to industry bodies.

High costs of finance; the absence of timely finance; the electricity demand-supply mismatch; high taxation and poor monsoon rains have together scripted disaster for India's economy, said D.Gandhikumar, vice president, the Federation of Indian Micro and Small & Medium Enterprises (FISME).

Gross domestic product grew 5.3 percent, year-on-year, in the July-September quarter of the 2012-13 financial year, according to government estimates announced Friday.

Power outages and irregular electricity supply has hit production across SME clusters, Gandhikumar said. The peak hour electricity deficit in India, Asia’s third-biggest economy, hovers around 10 percent and energy suppliers are struggling to meet rising demand.

“Industrial units are unable to execute orders on time, and the fact that they cannot secure funds on time, to produce, only adds to their woes. High interest rates and delays in sourcing funds from banks are contributing to production losses,” Gandhikumar said.

Small to midsize export-oriented businesses, which account for about 40 percent of the country’s exports, “are also increasingly finding it difficult to compete in the international markets owing to high taxes,” Gandhikumar said.

While industry has been demanding lower interest rates, the country’s central bank will not cut rates at the moment. “RBI will not cut rates given the fiscal deficit. As a result, investments into new project cannot be expected,” said Prakash N Raikar, a member of FISME’s central executive committee and immediate past president of the Karnataka State Small Industries Association.

“No substantial efforts are being taken (by the government) to put the economy in order,” Raikar said. The 2012-13 fiscal year will be a disaster, and its shadow could loom large on the 2013-14 financial year, he said.

Indian industry must be prepared to embrace uncertainties in the short term, said L.Krishnan, president, Indian Machine Tool Manufacturers’ Association (IMTMA). “The manufacturing sector has growth potential for a few decades provided we do not do the wrong things. In the short term, it is important for companies to look at cash flows, exercise prudence,” and avoid expenditure that does not have a customer impact, said Krishnan said.