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Credit Crisis: Opportunities & threats for India Inc

Posted by Manish Agrawal on Friday, 26 September, 2008

The jury is out. India can weather the global financial storm and will help the world economy come out of it.

An eye for opportunity

Indra Nooyi

Chairman & CEO, PepsiCo

From her position at the helm of an American MNC,Pepsico chairman and CEO Indra Nooyi has had a ringside view of Wall Street’s recent trauma. So the 200 top-notch business leaders and policymakers that had gathered got an insight into the heart of the crisis.

Ms Nooyi said inflation had increased input costs, which trickled down to higher prices in stores. At the same time, the troubles of the financial services sector had dried up the available money supply, making exchange rates more volatile. Real estate values have fallen, so consumers are being hit by a double whammy: a decreasing cash flow and a dip in the value of assets on the household balance sheet.

Ms Nooyi suggested that the way out of economic difficulty was through the creativity and the ingenuity of small businesses as they had the ability to create employment and reinvent processes in all kinds of economic conditions. In the end, she was eager to know how firms would spot the opportunities that came with economic threats. “For those who bear the difficulties and remain sanguine, assets suddenly look cheaper. Again, it’s not something I wish on any of us but an eye for opportunity is part of the skill.”

Peter Sands

Group Chief Executive, Stanchart

India needs to build itself a leadership position in the global economic architecture, and the current financial crisis should not deter it, says Standard Chartered PLC group chief executive Peter Sands.

“The world needs India as one of the shapers of the economic architecture and it has too much at stake to not play that role,” he said. The road ahead for the country is further down the path of globalisation: “These events should not be used to justify not engaging with the world. It’s in India’s interest and world’s interest that it continues with its global engagement.”

While Mr Sands admitted that the region is unlikely to remain unscathed, he felt that growth in the middle east and Asia would help mitigate the financial crisis. “Asia will slow down a bit. You cannot have the world’s largest economy slowing down and its impact not being felt. But it is not a zero-sum game,” the StanChart chief pointed out. India can no longer afford to be a passive recipient of policy regimes made by someone else, said Mr Sands. India must now proactively play a role in building those policy regimes in thefirst place.

Kamal Nath

Commerce & Industry Minister

The American crisis may be India’s chance, feels Union minister for commerce and industry Kamal Nath. The ongoing financial crisis is a clear indicator that the global parking lot for both long-term and short-term capital is going to change, the US is not going to be the only preferred destination. It is a great opportunity for India, Mr Nath said.

The minister pointed out that the global economy will no longer be driven by two or three trading blocs, as other smaller engines were gaining significance. “East Asia is the real place of action now, and India will be one of the major engines of growth,” he said, adding that the country will continue to grow at a rate of over 8%.

The Indian financial market will not be affected by the US crisis as it is not mortgage driven and has low exposure to real estate, Mr Nath said. “Our toxic investments are small,” he said. The country’s economy is based on strong fundamentals like a globally competitive manufacturing sector backed by domestic demand driven growth generated by 800 million people. “No free market economy can boast of such strong fundamentals,” he said.

A multilateral rule-based system established by the World Trade Organisation is, therefore, as much in India’s interest as in the interest of other countries, Mr Nath said. It is important to get rid of non-tariff barriers like impractical packaging norms which make it difficult for a country’s market to be penetrated even when tariffs are zero, he added. “We are not going to isolate ourselves at the WTO. We will engage to ensure that we have a free and fair world trading system,” he said.

Anshu Jain

Global Markets Head, Deutsche Bank

Recovery from the global financial crisis is going to be a long and slow process but India would be able to weather the storm through domestic capital formation, according to Deutsche Bank global markets head Anshu Jain. He feels that the combination of high saving rates and highly functional capital markets in India would take the country forward.

Mr Jain said that while inflation has been a cause of concern in India, it will come down in the future. Further, even as the global financial mayhem will lead to a slowdown in foreign investment into India, domestic savings will rise to take care of investments: “Our forecast is that looking at the demographics of India over the next 10 years, the country will offer high saving rates.” He added that India would be a diversification play: “Boardrooms in New York and Washington are enthused about India Inc.”

Sharing his perspective on the global financial crisis he said that it was the worst to have hit the banking and insurance industry in the past 50 or 60 years, “This is not a crisis we will wake up from tomorrow morning and think of as a terrible dream. This will last for a while. From my vantage point, it’s not going to be miraculous.”

Terming Warren Buffet’s investment in Goldman Sachs as an important turning point, Mr Jain said that in order to emerge from the current crisis, the balance sheets of banks would have to be repaired. “Banks are leveraged between 25-35%. A long slow, painful process of de-leveraging needs to be there,” he said.



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