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Indian CEOs still nervous; eye government bailout

January 01, 2009 15:34 IST

A majority of Indian CEOs do not expect economic prospects to improve in 2009 and feel growth is constrained by the liquidity crunch, negative sentiment and demand recession in the economy.

They are now banking on a big government-backed stimulus and easing of credit flow by the Reserve Bank of India to put the economy back on track. Less than a quarter of the CEOs believe the capital markets will improve during 2009 and most expect the rupee to strengthen in the next six months. Still, many of them have plans to make fresh investments and hire more people in 2009.

These are the results of a CEOs' poll conducted by Business Standard in the third and fourth weeks of December against the backdrop of the worst global recession in recent times. All told, 62 top decision makers were polled across the country from sectors like metals and mining, information technology, FMCG, pharmaceuticals, energy, aviation, entertainment, consumer electronics, financial services and retail.

Clearly, the mood of India Inc is sombre. Battered by the liquidity shortfall and global economic meltdown, 30 per cent of the CEOs said growth prospects for 2009 looked worse than 2008. Only about a quarter felt things will improve.

Around 20 per cent said 2009 will be the same as 2008. "These are unchartered waters. Almost no one knows what is going to happen next," said ABB India managing director Biplab Majumdar.

More than a global recovery, CEOs have pinned their hopes on increased government spending on infrastructure and RBI action on the liquidity front to revive the economy. Almost 80 per cent said this alone could lift business sentiment. Significantly, almost 15 per cent didn't know what would work.

The Centre has already unveiled a rescue package that includes easing of export curbs, cut in central excise by four percentage points and concessions on home finance. A second package is round the corner. RBI too has dropped its key rates, which has softened interest rates, though availability of credit remains a problem. But industry captains said more needs to be done.

"Monetary easing is essential to restart growth, but it is not sufficient by itself. The focus must be on building what is in short supply, which as we all know is infrastructure," Religare Enterprises CEO and managing director Sunil Godhwani said. Added Essar Steel Holdings CEO Jatinder Mehra: "The only way to restart growth is to generate demand through fiscal and monetary interventions."

On the foreign exchange front, most CEOs expect the rupee to gain strength vis-à-vis the dollar in the next six months. Crude oil prices, they said, will cool further and this will cut the demand for dollars.

Also, with the US Federal Reserve moving towards a zero rate policy, the supply of dollars is expected to ease. Though a stronger rupee might impact exporters, it will make project imports cheaper and also bring down the fuel oil subsidy bill.

A third of the respondents said the rupee will definitely gain, though they were unwilling to put a number to it. About 30 per cent expect the dollar to hover between Rs 43 and Rs 46 in the next six month, while another 25 per cent feel it will stay between Rs 47 and Rs 50.

Despite nervousness in the job market, downsizing does not seem to be on the CEOs' agenda. Only four of the 62 CEOs polled, or less than 7 per cent, said they would trim their rolls.

Over 80 per cent said they would hold their staff at the current level or increase it. But it is unlikely to be a free for all - hiring in 2009 will be selective and only where it adds value.

Salaries could be an altogether different story. "We don't see any downsizing as the business continues to grow. However there could be corrections in terms of compensation. After five years of hyper-growth, the salary cycles will need to be corrected," said Dabur India CEO Sunil Duggal.

BS Reporters in New Delhi
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