Breakfast Meeting on the ‘State of the Economy: An Industry Perspective’ – 24th October 2019
AMCHAM’s Tamil Nadu Chapter organized a breakfast meeting on October 24th in Chennai with guest speaker Mr. A Viswanathan, President, Delphi TVS. The meeting commenced with a welcome by Mr. Rajan Aiyer, Chairman – Tamil Nadu Chapter, AMCHAM. Mr. Aiyer mentioned that there is something wrong with the economy and no one is coming up with the solutions to fix issues to set right matters. He mentioned that every sector of the economy feels the pinch and the ripple effect of government decisions and global affairs.
Mr. Viswanathan began his presentation by stating that today, when two or more people meet, the first thing discussed is no longer the weather but the economy. Everyone has an opinion of what’s happening and how it affects them. Mr. Viswanathan made a very insightful presentation starting with decoding the macro elements and said the growth engines for the economy included: investment, net exports, private consumption. He said that due to lack of confidence the consumer was holding back, leading to a rapid fall in rural consumption. The other factors influencing it included: erosion of demand generated by unaccounted income as the economy moves into an era of higher formalization; issues with accessing funding; uncertainty due to job losses and future business incomes; deceleration in growth of income levels; wealth effect; H1B visa tightening; falling interest rates and lower inflation trends.
The government has begun a journey of fiscal inclusion by formalizing the economy through: direct benefit transfer; tackling corruption; transaction reporting; tax intelligence strengthening; tax linkage and demonetization. Examining the other factors affecting the slowing of credit, Mr. Viswanathan opined that this is due to: the collapse of the non-banking finance sector; PSU banks not well geared to accelerate retail credit; introduction of accountability in banks; introduction of credit scoring system; and reduction in unorganized credit.
Explaining what is needed in the short term, Mr. Viswanathan said that, individuals should have more disposable income; rural incomes should rise; GST rates to be lowered selectively; government to increase infrastructure spending; re-introduce investment incentives; aggressively drive exports and provide confidence on policy stability. While long term course corrections should focus on privatization; position India for a China plus one strategy; promote tourism aggressively; encourage labour intensive exports; revamp education and organize overseas placement to countries such as middle Europe, Japan and SE Asia.
While speaking on the recovery path, Mr. Viswanathan stated that social sector reforms in employment generation; health care delivery; quality of education and social security are of great importance and no economy can grow without attention to this sector. He said that the government has taken many measures in this connection, some of which include: pumping liquidity into the lending mechanism; bank weddings; rollback of FII surcharge; DA increase for government employees; release of government payments; implement major infrastructure projects and rate cuts. He added that the long term fundamentals remain intact and is an advantage that India has.
Dwelling on what companies should do, Mr. Viswanathan said that businesses should remind ourselves on the long term fundamentals and stay positive; manage cash well; cut back on working capital; cut back on discretionary spend; improve internal efficiencies; be lean and agile; continue to focus on growth strategies; negotiate for better rates; talent acquisition and development and that MNC units in India should promote India as the next manufacturing hub. More importantly, he added that companies should not: cut back on product development; allow talent drain; let short term setbacks derail long term thinking; freeze long term capex plans; lose connect with customer and market and not pull out of the country.
In conclusion, he said that this slowdown is different from the earlier ones and that it is a mix of cyclical, structural and episodical factors. The impact he said is widespread with many key industries contracting, some decelerating and few still doing better. He went on to say that the economy can get back to over 6% growth in the next two quarters, but that is not enough for India. A range of short term and long term measures are needed to put the economy into a higher trajectory as the long term fundamentals are intact. Giving the last punch Mr. Viswanathan said that as companies, “We need to think simultaneously about surviving in the short term and thriving in the long term.” The meeting ended with a Q&A session and Mr. Rajan Aiyer thanking Mr. Viswanathan for this very detailed presentation on the state of the economy.