Incredible Lightness

For, what nudged the ephemeral graphs and elusive consumer/investor sentiment up was not any cut in interest rate or major policy announcement, least of all a government that was technically not in power for seven-odd months. It was a border skirmish that sparked off an upsurge of "be India, buy Indian" feeling, culminating in the stock index topping 5000 points for the first time on October 11. Yes, Kargil definitely was the hero of Business ‘99.

In many ways, ‘99 was expected to be a historical year, a watershed in reforms and growth. Expectations were running high-expectation of a clear bottoming out of the recession, of reforms returning to centrestage, of several pending bills being passed, of insurance privatisation and a big push to disinvestment. Only, nobody expected the government to fall, by a single vote, immediately after the presentation of a very competent budget and a cut in lending rate by one per cent. Nor did anybody expect the election commission to make sure that the government hung by a thread for several months. An obituary to revival had almost been written...then Kargil came to the economy’s rescue.

It was not as if people started buying more fridges, TVs, cars, etc overnight, but the underlying trend firmed up. In April-June, manufacturing sector grew 6.2 per cent, compared to 5.1 in the same quarter of ‘98; services grew by 7.8 per cent compared to 6.4 per cent. Production rose significantly in commercial vehicles, automobiles and cement, marginally in steel. The consumer durables sector recorded a 12 per cent rise in production in the half-year, compared to 3 per cent in ‘98’s first half. Riding on the improving times, corporate profits went up by a quarter in July-September.

But the year was magical for prices, with inflation dipping to a low of one per cent in September. In fact, till March 2000, inflation is not expected to exceed 4 per cent. While the average consumer is happy with the overflowing vegetable marts and grocery shops, the exporter is also making hay. Exports for April-November have grown by 10 per cent (12 per cent in September) compared to 4.6 per cent in ‘98 H1. Overall, GDP grew by 5.5 per cent in the first quarter, not a bad show at all when all we need is 6-6.5 per cent.

Does all this make for a revival? Especially if one considers the cons-weak rains have ensured that the ‘99 kharif crop won’t be bountiful, capital goods sectors are still not out of the woods, states are vying with each other for going on the dole, banking reforms has miles to go, the government has already borrowed its entire quota for the year, non-plan spending is on a runaway graph, fiscal deficit has just been found to be 11 per cent of GDP (and you thought six per cent was too much!). And don’t go on about Kargil so; it has just landed the finance ministry with a Rs 20,000-crore hike in defence outlay. (That’s a little less than our total food subsidy.) Finance minister Yashwant Sinha recently placed in Parliament the largest demand for grants in recent times, including that of Rs 7,000 crore for defence.

But wait a minute. Nobody said business was going to be up and running from ‘99. The actual revival was predicted to take place only in 2000-don’t forget the millennium factor! What ‘99 was expected to do was to lay the firm foundations on which the recovery could be built-mainly by clearing pending reforms and tightening up the government’s fiscal health. Admittedly, the face of the latter looks quite blue, but things are moving fast in terms of the former.

In a hurry to make up for lost time, the government has cleared the long-pending insurance liberalisation, Patents Act and Companies Act amendments, as also the new laws on money laundering and foreign exchange management-all in the space of a few weeks in December. It has also introduced the first ever law to regulate the cyber sector. Corporate chiefs and businessmen are populating a host of new panels to advise the government on the economy, and on disinvestment, there’s an effort to dust out the cobwebs.

Even in terms of fiscal prudence, ‘99 hints at the shape of things to come. Despite the 10 per cent cut ordered on all government non-plan expenditure, and the statistical evidence furnished by Sinha at the Economic Editor’s Conference recently, the revenue gap is poised to remain wide. Direct tax collections in seven months were a little more than one-third of the target, while the take on indirect taxes came to about half. During April-November, tax collections registered a 17 per cent increase over the same period last year-ample evidence that the economy may be creeping back up, but it’s not entirely there yet.

Still, in terms of hard decisions, credit must go to where it’s due. On the subsidies side, the government did manage a steep hike in diesel prices and may further push through a price rise in LPG and kerosene. Earlier in the year, it also effected a sharp hike in ration shop grains, trimming the food subsidy bill by Rs 2,500 crore. Clearly, managing a high fiscal deficit is an act fraught with political risk, and beyond the realm of the realpolitik, a government has to perfect the art of living with it.

But let’s set aside the figures, which tell the harsh truth, and turn to the sentiments which reflect hopes. And they are buoyant. Why else would car sales finally cross half-a-million in January-November? Sales of consumer durables and personal cars are driven by feel-good factors in India, not by utility or necessity as in the developed countries. Also ask the industry chambers, or the small manufacturers and traders. If their expectations could bring about a recovery, it would be here now. In fact, Tarun Das, director-general of CII, corporate India’s favourite cheerleaders, goes a step ahead: "Last year, industry was fighting recession and its attention was on survival. Since the recession has bottomed out, reform is coming out on top and one has to work hard towards a better tomorrow." There you have it straight from the horse’s mouth, let the statisticians quibble on how and where the clouds lifted.

If industry is raring to go, it is because of factors which are more significant than a set of figures. On a new millennium eve, India attracts major global attention, because of its tremendous potential for change and what it already offers the world, not the least of which are brilliant software engineers. In one year, the BSE Sensex travelled from 2741 (November 30, 1998) to 4710 on December 16. There’s more. On December 8, India’s 21 stock exchanges clocked a record turnover of Rs 13,500 crore ($3.5 billion) with 300 million shares changing hands. Not a mean show, considering that the New York Stock Exchange, the mecca of capitalism, transacted 150 million shares worth $5 billion.

Considering also that this $5 billion might have included a deal in icici, which got listed on nyse this year. But the year definitely belonged to software giants and Internet badshahs. Infosys, India’s homegrown software giant, got listed on nasdaq on March 11, followed by Satyam Infoway. For the first time again, it was a corporate leader-Wipro chairman Azim Premji-who made it to the Forbes’ list as the richest Indian with a personal worth of $2. 8 billion. The rest of the year proved infotech’s supremacy over all other industry sectors, triggering also an Internet boom. In eight years, say renowned consultants McKinsey & Co, the infotech sector will fetch India over $87 billion. Topping it all of course, was the race to the bottom between Internet service providers, led by no less than the public sector telephone monopoly, MTNL. Frankly, the latest rates make net-surfing infinitely cheaper than the cheapest local telephone call.

One of the several reasons why, Cogentrix notwithstanding, there is a global trust vote for India. In Y2K, India Inc. is expected to raise $3.5 billion in foreign equity, more than half of what has been raised in the eight years since FDI was allowed. Even global floating capital is moving back into the country-net FII investments touched $10 billion recently, amounting to 5 per cent of market capitalisation. The global trade talks fiasco at Seattle proved eloquently that poised on the end of the upturn, industrialised nations are looking to the developing nations for holding on to their prosperity.

A fact that credit-raters certainly took into account when they held their outlook on India at positive. Especially as the outside world perceives a return to political stability as well as a commitment to continue with and expand on the reforms process. A top industrialist admitted recently: "The bright side this time is that the government is listening to us more than it has ever before." And once the government starts listening as intently to its people, 2000 may just trigger that elusive boom, finally.