Considering the deceleration in sales, the profit margins held up surprisingly well. Again, it is well to remember that margins were under pressure in 1996 itself; but taking the aggregate figures, it is clear that margins have suffered no further erosion in 1997.

So why are the corporates complaining so much? The answer must be sought in the contours of the recession. For one thing, it has hit the smaller companies harder. Their sales growth has been much lower; the difference in real sales growth must be even higher. Their gross profit margins have not been much lower than those of the large companies. But the small companies were less able to bring down interest costs. This could be because they are more exposed to debt, or because they were less able to refinance debt as interest rates fell. It is well known that in these hard times, banks prefer blue-chip companies. Whilst access to the equity market has shrunk for all, it has done so much more for small companies than for large ones. And large companies always try to pass on the burden of a credit squeeze to their small vendors and distributors. Thus the burden of financial adjustment has fallen disproportionately on the small companies.

The other aspect concerns the industrial distribution of the recession. A number of consumer goods industries are doing extremely well for instance, tea, soaps, cigarettes, textiles and jewellery. The slump is really concentrated in capital goods, vehicles and chemicals for instance, in engineering, bearings, steel, non-ferrous metals, cement, home fittings, cars, commercial vehicles, dyes, petrochemicals etc. These are the industries which built up excess capacity in the boom of 1992-96; until demand rises to utilise that capacity, they must continue to suffer.

The corporate tax reduction made by finance minister P Chidambaram has obviously helped in shoring up net profits; without it, the companies would have had much severer liquidity problems. But it is not enough to lift industry out of a slump. There has to be substantial fresh demand infusion. The easiest demand to tap is external demand. This is why a significant devaluation is urgently called for; every day spent avoiding it multiplies the industrys woes. Unfortunately, the political doldrums in Delhi make it quite unlikely that a bold and rational exchange rate policy can be evolved.