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AVALON Consulting
‘India poised for a turnaround soon’
Presentation at IMC, Mumbai Raj Nair, Chairman, Avalon Consulting Sep 17, 2013
2011 © Avalon Consulting. All Rights Reserved
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Contradiction with the title of today’s talk?
2014 is only 4 months away, Indians will feel good by then
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Headline news seem depressing
News we read in Aug- Sep 2013
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Indian Economy in reverse, leader ineffectual New York Times
India puts up brave front in front of global financial bodies as Rupee tanks Business Standard
India runs risk of sovereign debt crisis Times of India
Don’t blame the Press if you feel depressed
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The Masses will act like lemmings but Businessmen have to be proactive
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Look beyond headline news: Need to pickup new signals, evaluate trends, anticipate scenarios, and decide where the problems and opportunities are
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The masses are depressed.They read ‘Headlines’,but you must see the ‘Fine print’
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5% GDP growth in FY14 looks possible but requires significant turnaround in manufacturing & mining
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13.05 13.64
Q2 '13 Q2 '14P
28.86
30.43
H2 '13 H2 '14P
Q2 ‘14 is expected to grow at almost same rate as Q1 ’14
Economy has to grow at 5.5% in H2 ‘14 to hit the 5. %
annual growth
Agriculture Services Manufacturing, Mining
Optimistically grows at
4.6% Optimistically
grows at
7% Needs to grow at
2.5%
The quicker the
Government acts, the more
likely this growth will be
India GDP growth (Rs Lakh Cr.)
People who react to these past statistics will
expect the worst
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Our world is changing rapidly especially for businessmen
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Many changes expected in India starting September 2013
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India was expected to become the 2nd most competitive for manufacturing in the World by 2018. The Rupee devaluation can make it happen now!
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China
Germany
US
India
South Korea
Taiwan
Canada
Brazil
Singapore
Japan
Manufacturing Competitiveness
Comparative Manufacturing Competitiveness of Various Countries
* Study done by Deloitte Global Manufacturing Competitiveness Rankings 2012
Global Ranking in 2012* Global Ranking in 2018*
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Why am I going to be foolhardy to expect good things to happen in the next 3 months?
Two strategic platforms for the UPA and the BJP/NDA:
Secular versus Communal Development versus Stagnation
• BJP has played the Development Card and also want a soft ‘Not communal’ positioning. Want a NaMo vs. Rahul fight
• UPA wants to depict BJP as communal and play down its own Screw-up of India’s growth story
• UPA needs to play a 2 stage game. • Stage 1 Quickly revive sentiments in the economy and patch up the glaring
holes. • Stage 2 Thereafter, launch the secular missile.
Game Theory
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Why am I going to be foolhardy to expect good things to happen in the next 3 months?
My first hypothesis:
Indian politicians will do the right thing only when they have exhausted all easy options.
UPA will act now if they feel that there is more than an even chance of participating in the next Government. The opposition is in disarray. UPA’s expectations may be wrong
The second hypothesis:
This will be triggered if there is, at least, one politician in the Government today who stands to gain hugely and personally if the right thing is done.
There is a window of about 7 months before the general elections- hence they must act in the next 3 months. Almost like a T20 match from here on
Hypotheses for expecting change
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The Captain and the Coach will allow the other players to bat as required
Non Playing Captain:
The PM will not come in the way of action by his players if the Coach is OK with it
His uninspiring performance in the past, will not matter
Blessings from the top
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It seems like all system’s go for action
Coach
She has already played her cards with the FSB. Now she will not come in the way of the cabinet’s attempt to resurrect the UPA
It is important that UPA does not lose badly for Rahul to have a future in politics
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FM will open the innings with Raghu Rajan and bat like Shikar Dhawan
This is his chance to be the Hero who rescued the Indian Economy and to get the best shot at the PM’s post. Macro economic:
• Reduce CAD to the 4 % range in tandem with the RBI
• Savage cut in Fiscal Deficit to the 4.8 % range (Q1=62.8% of annual
budget already)
• Stabilise the Rupee exchange rate
• Manage Inflation
Others:
Make India attractive to FDI, FII, NRI, Indian business and Indian masses
He will want the good news to be spaced over the next three months Big hits at regular intervals to create sustained impact
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FM will open the innings with Raghu Rajan and bat like Shikar Dhawan
CAD is already falling due to import compression despite rise in oil imports ….till the economy picks up. (Strike on Syria can spoil the party) But positive action is expected…. • Some Bilateral netting of trade and settling only the balance in $ started • Oil Cos to raise $ 4billion (fuel price increase need to be signaled) • FCNR deposits made attractive • ECB allowed ($10 Bn more this year?) • Quick FDI clearances (> another $ 3 Bn this fiscal) • Oil Mkt Cos’ weekly demand of $ 1.7 Bn taken off the market • Curbing Gold imports (fall from $8.24 Bn in May to $0.65 Bn in Aug 13) • More steps to come Fiscal Deficit: • Food Sec Bill will really start biting only in FY 15 • Brutal cut in plan & non-plan expenditure (Apr-Aug 63% target used up) • PSU and portfolio share sales to net c. Rs 50,000 cr • Aggressive direct and indirect tax collection drive (some bullying)
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The FM knows that the positive sentiment has to go up now so that 5% GDP growth this year will be accepted with relief and not sorrow
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Other key ministers will also want to score runs(Commerce, Heavy industry, Coal, Iron & Steel, etc.) . Some like Environment Min will be forced.
Make Foreign Direct Investors happy • Stabilise Rupee in the 60-63 range • Make Tax admin more reasonable • Liberalise FDI Rules • No retrospective legislations Make FII happy • Some same as above • Friendly taxation laws • Improve the sentiments in the capital market Make Indian businessmen happy • Speed up project clearances (esp. Environment) • Revive many Infrastructure projects • Increase bank loan availability (RBI::curb excess Gsec investments)) • Incentives for new capital investments • Mining exports ban lifting (intervene with the Courts) • New factoring scheme for quicker payments to MSME (RBI) • Special incentives for certain sectors like Auto & A Comp, exports, lower interest rate,but will RBI will find it tough to do it before food inflation dips. After December? Or will it be in time for the Dassera-Diwali consumer spending? And more including better fuel linkages, stable F&O market, etc. 13
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Big ticket infra projects should continue to be fast tracked. Quick clearances will create a positive sentiment for attracting more investment
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• The project management group (PMG) set up by the union government has plans to expedite 62 delayed
projects worth Rs 3.93 lakh crore.
• The infrastructure projects are each of a size of Rs 1,000 crore or more
• 27 projects are in the power sector. These include
• Rs 33,000-crore Jaitapur civil nuclear energy plant
• Reliance Power’s Jharkhand Integrated Power project
• Several large projects of Tata Power, Essar, Lanco, and Adani groups
• The projects are delayed because of issues like land acquisition, fuel supply and environmental
clearances, mining.
• The PMG gave clearance to 17 large infrastructure projects in the last two weeks of July 2013
• It has also fixed end of September 2013 as the deadline for key departments to clear nine major projects
entailing an investment of Rs 92,541 crore
Delays in Infrastructure project clearance
Source: Press reports, Avalon Consulting Research and Analysis
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The RBI intends to do a number of things for the common man in tandem with the FM
Other than those already covered:
Extend banking reach (A Grade banks can open new branches in designated areas without clearances, more new Bank licenses by Jan 2014)
Direct transmission of subsidies to citizens bank accounts thru Aadhar
Inflation Indexed Savings Certificates for retail investors
Revival of micro lending with proper regulations and other schemes to help lower income households for investments, emergency needs, etc.
Mobile technology for payments and banking to make life easier, cut down time and cost for citizens.
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These all-round measures for Foreign Investors, Indian citizens and business will have a significant impact on the sentiment. Major impact on the ground will follow in time Will it be almost as unbelievable as the start of liberalisation in 1991?
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A businessmen need to be proactive , unlike the masses who are reactive
“You never let a serious crisis go to waste. And what I mean by that, it's an opportunity to do things you think you could not do before” a quote attributed to an Obama advisor Rahm Emanuel (borrowed from others including Winston Churchill who said that earlier)
What can you do? • If the Rupee settles between 60 and 63 to the US $, making Indian manufacturing and services
globally competitive? • What will global manufacturers do when India becomes more competitive than China, Vietnam,
etc.? • What impact do you expect in your business when infrastructure, auto, steel, cement,
garments & textiles, pick up? • What if you are an exporter? • What will you do when M&A activity steps up? • How will you think if you were creating a new business? • What will you do if you are a financial investor? Everyone has to reset his thinking about business and investments now……….
Will you wait till the sentiment changes or act now in anticipation ?
Crisis is an opportunity for those who think and act.
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Big worry: India is going to run out of capacity by March 14 and we will waste the big opportunity in FY 2015
The mindset of Indian entrpreneurs has to change soon
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Average Capacity Utilization
Industry Aug-10 Mar-11 Sep-12 Mar-13
Chemicals & Pharma 82% 80% 76% 75%
FMCG & Food 76% 80% 72% 80%
Electronics 72% 90% 65% 58%
Textiles 80% 84% 80% 81%
Capital Goods 75% 80% 70% 68%
Steel and Metals 70% 85% 75% 66%
Automotive 80% 80% 75% 73%
Cement 80% 80% 72% 77%
Leather and Footwear 72% 70% 73% 73%
Tyre 80% 80% 90% 80%
Source: FICCI
Barring Electronics and Steel, all others are at 73-81% utilisation. Apparels industry will be among the first to hit a capacity road block.
How many companies present here have the appetite to double exports in 2 years? A Chinese entrepreneur would have the balls to do more
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