The challenges facing Indian corporate sector
The honeymoon with globalization is slowly fading into the mists of time. For the last decade, we had been luxuriating in the after-glow of the spectacular economic growth, burgeoning trade and foreign exchange reserves, booming consumer market, and rising stock markets. Our knowledge professionals were in great demand from Tokyo to Texas, software and biotech companies had become the trendsetters in their fields, and a new breed of outwardly oriented corporate groups, with world beating ambitions were scouting abroad for good buys. Inflation was low, fiscal deficits brought under control and our macroeconomic policies were being applauded by multi-lateral agencies for bringing about stable and broad-based economic growth.
But in the space of a few months, sensex has tumbled, rupee has appreciated, export growth has declined, economic growth is facing strains, and inflation has reared its ugly head. We are now facing the first cyclical downturn of the global business cycle after we integrated with the global economy in the nineties. Questions are now being asked, as we face a reality check. Price controls, export bans, lowering import duties, input subsidies, tax concessions and so on are now being dusted up from the cupboards and placed at the policy making tables. The whole spectrum of economic regulation is coming back with a vengeance.
It was not so long ago that commodity producers used to complain about the terms of trade weighted against them, and manufacturers were enjoying the benefits of low input costs. Now the pendulum has swung to the other extreme, and manufacturers are complaining about high input costs.
The software exporters bemoan their falling competitiveness in the face of sharply appreciating rupee, rising wages, and ending of the STPI tax concessions. Textile and other manufacturers despair that the rising rupee has taken away their markets. Real estate developers who were hitherto...