Letter to BS: Current scenario portrays lopsided picture of economy

This refers to your article “Corporate India chooses deleveraging over growth” (October 3). The present economic scenario is experiencing the global effects of high costs of oil as also the fall in the rupee value. Thus cutting down on infrastructure to reduce capital costs takes precedence over market thrusts for corporates especially those who have oil-based production. Corporates will prefer lowering capital costs to ensure prudential investment and in turn, retain market and investor confidence. The overall economic scenario thus portrays an approach that is based more on consolidation than on commercial gains. The concentration on reduction of infrastructure costs, however, do not apply to fast moving consumer goods and the information technology sectors where costs are negligible and do not affect market and consumer demand. 

The banking sector is also emphasising recovery of non-performing assets and credit outflow is not receiving the attention it requires. The financial restructuring of corporates under the Insolvency and Bankruptcy Code has further aggravated the problem. The consequent liquidity problems involve a credit squeeze for both the banks and the corporates leading to economic stagnation. In short, the corporate accounts must be moving and not stagnating to ensure efficient commercial movement. The net debt-equity ratio will also portray a lopsided picture as fast moving consumer goods and information technology involve swift rotation of capital. 

C Gopinath Nair  Kochi

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