India Economic Summit reflects underlying unease amid hope

By Arvind Padmanabhan, New Delhi, Nov 18 : An underlying unease amid hope! This perhaps best describes the mood among the participants at this year's India Economic Summit, which evidently lacked the high-profile attendance that the Davos, Switzerland-based World Economic Forum (WEF) had generally managed to draw in the past.

The ill-effects of a recession in the US and an overall global economic downturn weighed heavily in the minds of corporate leaders, even though many felt that India, with its high growth rate, even if slowing, was better equipped than many others to tide over the situation.

And this sentiment was best summed up by Finance Minister P. Chidambaram, while speaking on “Risks to India' Economy in a Post-Crisis World” on the concluding of the three-day summit, now in its 24th edition, that began here Sunday.

“This recession threatens to be a longer and deeper recession affecting most industrialised countries and we in India are experiencing the spill-over effects of what is happening in advanced countries,” he said.

“While world output will decline - and to that extent affect our exports, affect some capital inflows, affect external credits - we must be able to quickly substitute or compensate for that by stimulating domestic demand and providing liquidity in the domestic market,” Chidambaram said.

“Let us assume that for another month or two there will be further bad news, but even then we will grow at a satisfactory growth rate. Next year we will bounce back to a much better growth rate.”

The Indian economy is predicted by various think tanks and the central bank to grow at between 7-8 percent this year.

But the corporate sector remained apprehensive, having to contend with a demand slowdown, mounting inventories, higher input costs, rising cost of borrowings, depreciating rupee, volatile capital markets, lower profits if not losses, and resisting the unpleasant task of job cuts.

“There is a crisis of confidence,” said K.V. Kamath, president of the event's co-host, the Confederation of Indian Industry, and managing director of ICICI Bank, India's largest in the private sector.

“There is an urgent need to boost public confidence in the fundamentals of the economy for a recovery to take place,” said Kamath, adding: “I am also the first to concede that there is a change of mood to the other end of the spectrum."

Last year, the mood was entirely different. The Indian economy was racing ahead with the nine-percent-plus growth, exports were booming, inflation was moderate, the markets were on an upswing and corporate India was rolling in profits.

As a result, this year's event saw few participants talk about the need for the government to push ahead with reforms, the need to spruce up infrastructure or the need to liberalise foreign direct investment regime further.

Their focus was clear: The US economy was in recession, which had spilled over to some European counties as well, and that Japan, the world's second largest economy, was now adding to the depressing news with a confirmed recession.

Yet, not all participants agreed with the gloom and doom theory being propagated by some stakeholders, especially in the backdrop of a 50-percent-plus fall in a key equity market index and falling corporate profits.

“I'm hearing concern expressed here about six percent growth. In the West, that growth would be considered quite fantastic," said James Quigley, chief executive of the US-based accounting giant Deloitte, among an estimated 700 delegates from 35 countries.

From the managing director of Asian Development Bank Rajat M. Nag to World Economic Forum founder Klaus Schwab, and from Gujarat Chief Minister Narendra Modi to India's Commerce Minister Kamal Nath, all maintained that the Indian economy was resilient enough to tide over the crisis.

And it was this underlying sentiment that Chidambaram sought to highlight while asking India Inc not to panic and assuring that the United Progressive Alliance (UPA) government and the central bank would take all necessary steps to minimise the impact of global crisis on India.

"The classic response to demand slowdown is to cut prices for the short-term," he told participating industrialists, while calling specifically upon airlines, realtors, automobile makers and consumer durables companies to lower prices to stimulate demand.

“All I ask is, there are enough people to spread gloom and doom. Just have your chin up, and in six-nine months, or maybe 12, we will be back to normal growth rates that we are used to.”