Corporate: Concerned, Not Alarmed

Latest reports emanating from China paint a rather curious picture. Beijing streets are bustling with people, relieved after a draconian zero-Covid system. While the BF.7 Covid strain plays havoc in the country, with its hospitals swamped with the sick and elderly, an opaque Chinese system does little to make things easy for the world outside. Unofficial estimates say the number of those dying there may be in thousands, but officially, China plays super censor. On Christmas Day, it said, there were no Corona fatalities.

The world is not taking chances, though. India, in addition to others like the US, Italy, Japan, France, has made Covid screening mandatory for arrivals from China. With 90 per cent double vaccination (booster does coverage does remain a point of concern), India’s preparedness for any new variant of Coronavirus is robust.

2023: A Year of Uncertainties

For a world already struggling to cope with the Ukraine war, a global slowdown, particularly in Europe and China, rising inflation, and multiple other challenges like climate change, the latest China crisis has only added to the anxiety. Indeed, the only certainty that economies now must live with is “future uncertainties”.

Consider this: Global projections, including those from IMF, a year ago had said that India would grow at a rate close to 10 per cent in the calendar year 2023. And, then Russia invaded Ukraine. The recent Supplementary Demand for Grants, to the tune of Rs 3.25 lakh crore, was largely on account of fertiliser and food subsidies, necessitated by the Ukraine War.

“…What we have brought in now is as a result of what could not have been anticipated in January when we were preparing the Budget,” said Union Finance Minister Nirmala Sitharaman in the Rajya Sabha on December 21.

Global uncertainties and geo-political upheavals ravage economies, lives and livelihoods. They call for urgent action. In the fastest-growing large economy, too, they create huge challenges for India Inc. 

India Inc., Concerned, Not Alarmed

In a conversation with BW Businessworld, Ficci President Subhrakant Panda says: “There will be some turbulence in the short term… (but) we should keep our focus razor-sharp on our medium-term and long-term potential.”

Say’s R.C. Bhargava, Chairman, Maruti Suzuki India: “No country can be insulated against serious international headwinds. A strong domestic market, and the ability to provide its needs in a competitive manner does help to lessen the impact of these headwinds. Good policies also help to mitigate adverse effects. Fortunately, India is better placed than most others in these respects.” Adds Varun Berry, Managing Director, Britannia Industries: “Despite global headwinds, I believe that India will continue to be among the fastest-growing economies in 2023.

We have a strong domestic market. Consumer demand has been robust and exceeded pre-Covid levels. We are also seeing easing of inflationary pressures which should further spur consumption.” According to Mohit Malhotra, CEO, Dabur India: “The urban demand growth will continue to be driven by emerging channels like modern trade and ecommerce. The consumer shift in favour of online purchases that was formed during the pandemic is today a permanent fixture with ecommerce emerging as the most-preferred contactless method of making purchases, particularly among the millennials and centennials.”

India Doing Fine

If the last two quarters of the 2022 financial year are a harbinger of trends in 2023, it will be a “year of recovery, growth and recalibration”. The World Bank expects India’s real GDP to grow at 6.9 per cent in the 2022-2023 financial year, revising upwards its previous projection of 6.5 per cent. The International Monetary Fund (IMF) too sees India doing relatively well amidst a despondent global scenario, in which growth is expected to slow down to 2.7 per cent. On a recent visit to India, IMF’s Deputy Managing Director Gita Gopinath said, “India is doing relatively well and it has had a few quarters of 4-6 per cent growth. That helps in terms of closing the gap from the sharp contraction that happened in 2020.” The World Bank, in an early December report, “Navigating the Storm” said that the “Indian economy is relatively well positioned to weather global spillovers compared to most other emerging markets”.

Vice Chancellor of the Gokhale Institute of Politics and Economics and former Aditya Birla Group chief economist Ajit Ranade told BW Businessworld: “The global downturn, including China slowdown, will undoubtedly affect India, but we can still achieve 6 to 6.5 per cent growth with a proper focus on domestic consumption and investment, as well as export competitiveness. India Inc. would do well to focus on the medium to long-term structural features of India’s economic strength, and plan their investments and strategy accordingly. India has a large domestic market, where consumer spending, new investment from the public and private sector can sustain growth.”

Adds Berry: “Reduction in input costs, higher capacity utilisation and deleveraged balance sheets augur well for a better corporate sector performance in 2023.”

The corporate sector deleveraging its balance sheet is reflected in the declining core debt of private non-financial sector which has decreased to 87.7 per cent of the GDP in June 2022, from around 97.4 per cent in March, 2016.

“The government’s increased spending in infrastructure coupled with strong economic fundamentals and prudent macro management will facilitate higher GDP growth, while mitigating global economic uncertainties,” adds Berry.

Aarin Capital Chairman T.V. Mohandas Pai tells BW Businessworld: “India is in a good shape as our banking system is strong and clean, investment in infra has made us more productive. Yes, exports will be hurt but we need to handle this.”

Points of Concern

Declining exports have been a point of concern. In Q2 of 2022-23, exports were the highest for the quarter since 2015-16. After a steady year or so, exports faced a slowdown with many countries witnessing a recession. There was a 17 per cent dip in goods exports in October. November saw a minor uptick at 0.6 per cent.

The state of the Indian economy, however, is much better compared to the previous two years. Quarter after quarter, the government’s earnings have increased consistently. Tax collections are up. Earnings from the railways, trade and commerce are in the positive. So are the figures from the direct tax collections. India’s foreign exchange reserves crossed $550 billion recently. While domestic consumption has seen recovery in 2022, and tax revenues are buoyant, public debt to GDP ratio is too high. But private capital expenditure has not really taken off.

In her last budget, Union Finance Minister Nirmala Sitharaman had raised capital expenditure by 35 per cent to Rs 7.5 lakh crore. In a recent interaction with industry representatives, the finance minister hinted that the trend would continue in her fifth budget, expected to be announced in a month’s time.

Taming Inflation

It’s been argued that inflation has been managed well here in India while globally, it’s one of the major problems. JP Morgan’s Chief India Economist and part-time member in the Prime Minister’s Economic Advisory Council, Sajjid Chinoy, recently said: “…Just think of what happened in the last 12 months: we have had the strongest inflation in 50 years around the world, we have had the most aggressive and synchronised monetary tightening cycle in 40 years, we have had the strongest US dollar for much of the year… we have had the weakest China growth in 46 years…” Even two of these factors could push the global economy into recession, added Chinoy. 

To control inflation in India, RBI, too, hiked rates. Many argue, like Panda does, that the “timing of post-Covid stimulus packages helped”.

In her Rajya Sabha intervention, Sitharaman said: “The targeted way in which the Prime Minister decided to give relief during Covid and address the concerns has kept us on a safe course helping revival and not getting into recession.”

Jobs, Manufacturing and China

In the Rajya Sabha debate on the Supplementary Demand for Grants, the Finance Minister also answered questions on job creation. She said: “…Jobs are being created, In September 2022, the net payroll addition, looking at the EPFO records, is 46 per cent higher…” Other government spokespersons have also argued, for instance, that in April, May, June, July and August, “on an average 15-16 lakh jobs have been created in the country”.

Raghuram Rajan and others, on the other hand, have argued that “while industry and services employment grew 98 lakh in the 2018-19 and 2019-20 period, agriculture employment increased 3.4 crore in the same period”.

Many, then, agree that there is a case for India making up for the missed opportunities of the past and making it big in manufacturing, especially when China faces particularly challenging conditions domestically, and global corporations look for alternatives.

Says Ficci’s Panda: “China Plus One is back on the table. India should be the preferred choice for China Plus One. Investments coming out of China are also going to Vietnam, Mexico. India can be an attractive option if it further pushes ease of doing business.” Among measures suggested are maybe a concessional tax regime for global corporations looking to move their supply chains. Including sectors with high potential in exports under PLI is among such measures.

Making India a manufacturing hub has been a priority for the Narendra Modi government. Manufacturing’s share of GDP is around 16 per cent. According to Morgan Stanley, it could rise up to 21 per cent by 2031. Manufacturing’s share in GDP is over 30 per cent in many East Asian countries.

Displacing China, a $17-trillion economy, as the workshop of the world is easier said than done, but India can surely become a viable alternate centre.

In a recent paper, Arvind Subramanian and Josh Felman argue that “in its quest to become ‘the next big China’, India faces three major obstacles: investment risks are too big, policy inwardness is too strong, and macroeconomic imbalances are too large. These obstacles need to be removed before global firms will invest. They can bring their operations back to ASEAN, which served as the world’s factory floor before the role shifted to China….”

China’s decline, however, provides a huge opportunity. India’s border tensions with China only add to the uncertainty. So, India must explore every trick in the bag to checkmate its northern neighbour.

So, when there was a media speculation that “the Indian government may review its stance on Chinese investments to help global firms looking to relocate to India,” Niti Aayog member Arvind Virmani tweeted: “It’s in India’s interest to allow Chinese companies in the supply chains of Samsung, Apple and other anchor companies to shift production from China to India to accelerate development of the electronics ecosystem in India, subject to (periodic) security review.”

Clearly, manufacturing will remain a focus for India Inc. not just for creating jobs but also to help India realise its $5-trillion economy vision and developed nation status by 2047.

Learnings from the Pandemic

However, even best-laid plans go haywire in the face of uncertainties. The Covid pandemic, followed by the Ukraine war, and the global downturn, has proved that 2023 will be a year full of uncertainties.

Surely, the lessons learnt by India Inc. during the Covid pandemic will help it navigate through crises of future. Says Pai: “We need to build institutions which will build capacity across all sectors to tackle matters like this (uncertainties). We need more research, stockpiling of inputs, better trained people, localised capacity, etc. All critical areas need more investment. Our disaster recovery institutions have worked to tackle natural disasters. They need to be enhanced.” Says Bhargava: “MSIL was able to better navigate the Covid crisis because we had built financial reserves for bad times and had concentrated on building a strong and competitive company. Our employees and business associates all work as a team and that gives us great strength to withstand crisis situations.”

Adds Berry: “The pandemic prompted brands and businesses to reprioritise and advance sustainability efforts while building value for all stakeholders. We, at Britannia, were able to successfully weather the impact of the pandemic because we stayed true to our strategy. We continued our focus on our five strategic planks – distribution & marketing, innovation, cost focus, growing adjacent businesses, and embedding sustainability.

Clearly then, 2023 may be a bumpy ride, but the long road to 2047 is well-defined. With strong fundamentals, India hopes to retain its fastest-growing large economy tag in 2023 even as India Inc. plans long term, while making plans for short-term exigencies.