9 Reasons why Indian Corporates Fared Well in Global Recession

recession2 Bad economy made a big impact on world economy. Countries like Germany, Japan are already in recession. Investment banking are the worst hit during this recession period, followed by banking and insurance sector. Many multinational companies and private sector firms posted lower profit or loss in the last one year. Not only has the Indian economy escaped the onslaught of Wall Street, but many Public sector Enterprises (PSE) in India fought well with the sagging economy compared to private sectors due to their conservative approach all along. They didn’t curtail staff strength like their counterpart. On the contrary, they posted significant profit. After going through the discussion with top company management, I found following reasons why India Inc fared well during recession.

  • Most of the observers think that Budget 2008  stimulates demand and hence GDP growth. In order to boost the economy, UPA Government has taken decisions to cut central excise duty and service tax. Government also reduced the rate of service tax on taxable services from 12 percent to 10 per cent to restore confidence of service sector.
  • The most important part of Indian business scenario is the investment.  Gross capital formation went up sharply from 23.8% in 2002-03 to 34.6 per cent in 2007-08. Half of the investment came from private sector. So the decision of CEOs in terms of investment proved effective. Investment by the private sector is made  when there is a good likelihood of profits, and vice versa.
  • During recession many global firms  sold goods at low prices in an attempt to keep market share at a time of soft demand. This would impact on the profitability of a large pool of corporate India and hence encouraged further investment.
  • Central bank lowered repo rate and cash reserve ratio (CRR) several times in the last one year. That improved liquidity by pumping in more cash in the market.
  • Central public sector enterprises — like the National Thermal Power Corporation (NTPC), Bharat Heavy Electricals Ltd. (Bhel), Oil and Natural Gas Corporation (ONGC), Gas Authority of India Ltd. (Gail), Steel Authority and the National Buildings Construction Corporation improved their performance in terms of production, dividend record and social responsibility. Even when the stock market has crashed , the quoted prices of the listed PSE shares have declined marginally.
  • Indian banks have proved among the most resilient and sound banking institutions in the world because they are based on strong business fundamentals, rigorous monitoring of risk and strong monetary guidelines.
    While the assets and liabilities of both foreign and private sector banks went down during the corresponding period last year, the public sector banks seem to have more than made up for the shortfall from foreign and private sector banks. The extra growth of bank resources is used to diverse sector of Indian Economy.
  • Although, there is a major slowdown of IT industries among the rich nations across the world,  Indian Software Industry survived well during the economic downturn. As per Ganesh Natarajan, CEO of Zensar, we are creating new products, tackling new verticals, and focusing on end-to-end service (and these claims were all backed by facts and figures), and this diversification and added value makes us resilient.
    Additionally, economic meltdown in the United States and other developed countries is likely to benefit the Indian BPO industry. It will compel many big companies to outsource as a way to cut down costs. Also, India Govt is planning to extend tax relief for the IT sector for another five to ten years to promote exports.
  • The key growth drivers are textiles, metals and products, machinery, cement, fast moving consumer goods (FMCG) and miscellaneous sectors during the recession period. Although, sectors like auto-parts fell significantly.
    As per Indian Chambers of Commerce Industries, six out of the 12 sectors it covered will report higher growth rate in the April-June quarter over the year-ago period, pushing the entire manufacturing sector to positive growth.
  • Further steps to boost the economy during the downturn included expanding the limit of foreign direct investment allowed into the country in insurance, manufacturing, retail and telecom as well as increasing bilateral and multilateral ties, not only with China and South east Asian nations but also with gulf countries.
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