The dancing elephant needs support for some more time!

The global recession which started hitting countries from Oct 2008, was a blessing in disguise for the Indian corporates. The world started looking India from different angle. The traditionally conservative banking system was appreciated world over. The regulators shared limelight like never before. It was difficult time but, it brought a lifetime opportunity for Indian behemoths. They became more cautious. They started cutting on cost, deferring capital expenditure, realigning their business and consolidating their operations.

The Indian government provided stimulus package in installments. Rate cuts, plan -unplan expenditure of $60Bn, cut in central VAT, incentives to export industries, refund of service tax paid by exporters to foreign agents, Incentives for loans on housing, Limits under the credit guarantee scheme for small enterprises doubled, Export duty on iron ore fines eliminated, Export duty on lumps for steel industry reduced to five percent.

Largely speaking, Indian economy was never hit by recession. We never neeeded a stimulus package of any sort. But the aggressive move by the government ensured that the interest of SMEs is maintained. The exporters are not hurt significantly due to falling demand and delay in payments. Withdrawal of funds by FII also created a credit crunch situation. India clocked a growth of 6%-7% in the midst of adversity around the world. This was possible due to strong and growing rural demand. The consumer spending has been increasing on month-on-month basis.

No doubt the booster hasnt come for free. The fiscal deficit is close to 12% of GDP. Rate cuts and incentives to boost growth has resulted in inflation. Government has to play a balancing act between maintaining growth and containing the inflation. But, if the stimulus package is rolled back now, it would create a recession like situation in India. Infrastructure projects worth billions are underway. They need extended incentives. Large projects might get delayed and cause cost overruns. Various sectors are still in consolidation phase. The results declared are volatile. Industries are yet to experience stability.

fOoD fOr ThOuGhT: The dancing elephant needs stimulus support till 2nd quarter of the FY2010-11. We are targetting a growth of 8%+ now. So if roll back is done in phased manner, we will have our average growth of 6.5% without hurting any industry. Untimely removal of ladder might enforce few to fall.

Business Challenges After the Recession

When the recession is over, business challenges will be different, not gone. Companies wrestling with the downturn need to consider what new problems they’ll face in the recovery.

You may have cut back on your staffing level to survive the recession. When sales recover, you’ll start hiring—but whom? Many of the folks you laid off will not be available. Some of the people you hire may not have worked in your industry before. You will have a training challenge greater than you had before the recession.

The employees who stayed with you through the recession will be different. They may have felt guilty when they survived layoffs. Then they worked hard without bonuses, pay raises or much chance of promotion (because the company was not expanding, and few higher-ups were quitting or retiring). After working hard through the recession, their attitudes will be different than had been a few years earlier.

Consumers are cutting back on their spending, but the day will come when they buy cars and furniture again. How will the recession change their attitudes? Will they buy the same products, the same styles, at the same price points as they did in 2005? Probably not. What mix of products will fill the consumer’s need to celebrate the return to normalcy, without falling into the same old bad habits?

When it’s time to ramp up production, will your vendors be ready? If you had to cut back your orders during the recession, your vendors will be hurting. They may have laid off key personnel, and they may not have the financing in place to buy raw materials to provide you with products. Their problems will become your problems if you rely on them for critical supplies.

Speaking of finance, what about your own situation? The financial crisis has changed the world of credit in ways that won’t quickly be reversed. Securitization will continue, but at a much slower pace, with far simpler deals. This is a problem even for companies that never floated complex deals on Wall Street. Virtually all forms of business credit have been securitized: bank loans, lease receivables, commercial mortgages, credit card debt. Many business borrowers didn’t even know that the money for their loans came through these channels. The closure of secondary markets, though, makes business credit harder to obtain.

Business recoveries are stressful to balance sheets. Chief financial officers who have felt stressed by declining sales volumes will feel a different kind of stress next year. Increasing orders will require spending on inventories and personnel, much of which has to take place before payments are received from customers. This need for working capital will increase before credit markets fully adjust to the financial crisis.

How does a business leader prepare for these new challenges? The first step is to keep the company going, which means dealing with today’s challenges. At the same time, take a few hours and sketch out the challenges you expect when the recovery comes. Bring in a few colleagues and brainstorm. Then look at the issues that need current action. Some problems can wait until they arise, but others can be nipped in the bud with a little forethought. The companies that thrive in the recovery will be those that not only survived the recession, but also planned for better times.

China: The Earthquake impact.

Here's how the recent earthquakes will probably impact China.

Due to the earthquake, China has lost huge amount of human capital, fertile land, natural resources, etc. It will impact the agricultural production drastically. The production would be less and the ability to deliver products in the market will reduce. This will result in demand supply mismatch. The increased demand would put pressure on the existing prices.

The affected area will require rebuilding and redevelopment. For this huge capital and resources would be required. Demand for resources like Oil, petrol, energy which are already scarce will push the crude oil imports. With crude oil touching life time highs, this can further add woes for the government.

Also the material and different services required for the redevelopment of affected areas will have a negative impact on the prices.

And while all this happening, maintaing high growth would be difficult. Add to it difficult global markets scenario.

Controlling measure for the government could be to restrict price rise or artificially freeze prices of commodities, in order keep a check on inflation. But, this can not be the ultimate long term solution. The earthquake has caused a real increase in demand and a real decrease in supply. How can price freezes possibly eliminate the disequilibrium? It explores both the difficulty of keeping prices at current levels – shortages and an increasing fiscal subsidy – and the difficulty of letting prices rise – the inflationary impact.

Zimbabwe - The Unbeatables!

The Indian people and the government are both quaking with fear with inflation hovering at around 8%. The people can barely make two ends meet with prices soaring, and the government knows that if prices don't fall, the government will.

But India is not the only nation grappling with rising inflation. The entire world is. So which is the nations with highest inflation rates?

Zimbabwe: 355,000%!
The inflation in Zimbabwe for the month of March 2008 rose to 355,000%! Yes, 355,000 per cent! It more than doubled from the February figure of 165,000%.
Economists say that it is a miracle that the Zimbabwean economy is still surviving and prices have been rising to unprecedented proportions. Inflation surged between February and March following the sudden rise in money supply that flooded the economy to finance the 2008 elections. Apart from this food and non-alcoholic beverages continued to drive up inflation.

Almost 80% of the nation is unemployed. The Zimbabwean central bank has introduced $500 million bearer cheques (or currency notes) for the public, and $5 billion, $25 billion, $50 billion agro-cheques for farmers. Just last fortnight the nation had introduced $250 million bearer cheques.

A sausage sandwich sells for Zimbabwean $50 million. A 15-kg bag of potatoes cost Zimbabwean $260 million. But then, Zimbabwean $50 million is roughly equal to US$ 1!