Rebooting Corporate India?

To lift corporate India into a higher trajectory of growth, bank lending has to restart. Private investment has dropped precipitously over the past three years. Capital formation is down.The savings rate has sagged. All of these point to weak consumer demand and cash-strapped corporates.

- Minhaz Merchant

After a long corporate winter, is spring in the air? India’s corporate sector has been buffeted over the past three years by stormy winds from several quarters : demonetisation shaved consumer demand, GST disrupted the SME sector, and bank NPAs starved companies of funds.Investment in new projects plunged. Corporate profits stagnated. It is only in the last quarter that a semblance of recovery is visible. Green shoots, however, can wither. Private investment has atrophied over the years. Credit offtake is low, leading to working capital shortages for industry. This makes banking reform critical to nurse the corporate sector back to health.

Let’s start though, with some good news in the macro economy. Industrial growth in January 2018 more than doubled to 7.5 per cent over January 2017 (3.5 per cent). Manufacturing led the recovery. It nearly quadrupled the growth recorded in January 2017 (2.50 per cent) with a robust rise of 8.7 per cent. Even more encouraging, the capital goods sector, which mirrors industrial activity, spurted 14.6 per cent in Januar y 2018 compared to a contraction of 0.6 per cent in January 2017. The investment cycle is likely to turn positive over the next few quarters if the early projections of a good Monsoon prove accurate, boosting rural incomes and spurring consumer demand. As corporate profits pick up, R&D budgets must rise. Without world-class R&D, Indian industry will lag behind the US, Europe, China and East Asia in fostering innovation.