'We are not heading back to the 2008-09 situation'
Known for his plainspeak, Baba Kalyani, chairman, Bharat Forge is not just a voice representing Indian manufacturing but that of entire India Inc. As slowdown fears turn real, he says it's critical now to have a political consensus on reforms. Industry too should gear up to reduce costs and seek new customers in new markets. Edited excerpts from an exclusive interview with Business Standard.
The GDP numbers, specially the manufacturing data clearly highlights that slowdown is here for real. What according to you is leading to this slowdown?
A combination of factors. The slowdown in the global economy particularly in the US and Europe has impacted India’s exports. Crisis in global financial markets has disrupted capital flows into our economy which has taken a toll on exchange rates, liquidity and trade credit.
What is your specific suggestion to the government to tackle the issue?
The country needs a strong political consensus on economic reforms. We need more reforms in critical areas. The government and the RBI also need to monitor and ensure liquidity in financial markets to neutralise large foreign exchange outflows on account of repayment of foreign loans and FII withdrawals.
With inflation expected to reduce due to lower global crude oil and commodity prices, the subsidy burden and fiscal deficit would also drop. In this situation, the government should soon be prepared to reduce interest rates to flag off the next cycle of growth.
Do you think Indian industry will need a fiscal package like the one in 2008-09?
It is perhaps too early to reach this conclusion. However one must say that we need to believe more in the capabilities of our manufacturing sector and create conditions through which it can contribute effectively to the country’s economic growth and development.
Perhaps the New Manufacturing Policy will help us to do this. For the time being, companies should emphasise on reducing costs, improving operational efficiencies, enhancing revenues and margins, resort to strategic sourcing to address the issue of volatile input prices, explore opportunities with new customers and in new markets and take steps to improve market shares, profits and performances.
Are the repeated interest rates hike the main reason for this slowdown?
Monetary tightening is an accepted tool to control inflation. At the same time the frequency with which interest rates have been raised has perhaps contributed in dampening investor sentiment.
To what extent is the overall policy paralysis affecting industry?
Decision making by government is clearly not happening at the pace at which it should. There are several reasons for this and most of them are well known. It has now become imperative for the government and major political parties in the opposition to reach out to one another and reverse this situation. The earlier this happens, we would stand a better chance to deal with economic challenges that face the country.
How is the slowdown affecting you? What are the steps undertaken or (planning to undertake) by Bharat Forge to maximise cost efficiencies? Are we heading back to the 2008-09 period?
We don’t think we are heading back to the 2008-09 situation simply because we learnt a lot from that experience. We have already initiated measures to improve cost and operational efficiencies, renewed focus on customers and markets and are engaged in leveraging resources from various world geographies to enhance competitiveness.
Are we worse off this time round?
The size of our domestic market is perhaps our biggest advantage. Our economy is driven to large extent by domestic consumption and domestic investment.
Most of our investment is funded by domestic savings. This makes our economy more resilient to external shocks. Clearly even if economic growth moderates to 7.5 per cent over the next two fiscals, we are better off than most other countries.