KEY POINTS:
He is one of India's smartest bankers and when he sticks his neck out and declares the nation's economy is in rude good health, everyone wakes up from their collective slumber and pays attention. Last Thursday, K. V. Kamath flung caution to the wind and declared himself the
Indian corporate world's prophet of boom.
"Its my job as a banker to feel the pulse of my customers. My outlook has changed in the last three weeks. I haven't seen any negativity at all," said Kamath, who heads the fast-growing ICICI Bank.
Could Kamath be right?
Is the Indian economy still bounding along at a scorching pace despite high-hump speed-breakers like stratospheric oil prices, back-breaking inflation and high interest rates?
Kamath reckons there's a tidal wave of investment washing over India: about $700 billion, give or take a few zeros here and there. More importantly, nobody's hitting the brakes or slowing down on investments even if the global economy has suddenly sailed into choppy waters.
"There doesn't seem to be a problem with corporate demand for credit. There's a slight slowdown but it's not very significant," says Abheek Barua, chief economist at HDFC Bank.
What's going on here? Could it be that bubbling optimism about the Great India Story is trumping the gloom about a global slowdown? Is everyone focused on the future and scrambling to grab pole position and get a competitive edge over their rivals for the years ahead?
Take a look at the Indian aviation industry.
Four new airlines are poised for take off and waiting for a green signal to reach for the skies. The number of passengers taking to the air is expected to climb by anywhere between 20 per cent and 25 per cent this year despite rising fuel prices. That's down from about 30 per cent last year but still strong growth by anyone's reckoning.
Nevertheless, the new aviators are feeling the pinch. India's high taxes mean that aviation fuel is 50 per cent costlier than most parts of the world. And rising fuel costs have pushed up operating costs by a fuselage-breaking 15 per cent in the last year.
"There's no way you can make money in this scenario," says Kapil Kaul, CEO, India and Middle East, of the Centre for Asia-Pacific Aviation, an aviation industry consultancy firm.
So why are four new airlines lining up on the tarmac? It seems a lot of people are betting that India's economy is headed up, up, up and they're sure any slowdown will be short-lived.
Turn to the Indian bazaar. The action here's more complicated because politics is seeking to heavily influence the over-the-counter action. Small shopkeepers are arm-twisting the political parties to keep out big retail chains which they feel will drive the small mum-and-dad stores out of business.
But is that stopping anyone? Gibson Vedamani, secretary-general of the Retail Association of India, reckons the cash counters kept ringing, and whether organised or chain store, retail grew at an extremely healthy 42 per cent to 45 per cent last year. He reckons that might slip to about 38 per cent to 40 per cent in 2008-09.
Is that a catastrophic fall? Clearly not. What's more, he says shoppers don't seem to be cutting back on spending. "We've not seen a slowdown in consumption," says Vedamani.
Also, retailers are still pushing ahead with ambitious expansion plans. One medium-sized company, Subhiksha, is seeking to go national in double-quick time and has opened 750 mini-marts in just 18 months.
At the other end of the scale, Aditya Birla Retail, owned by billionaire Kumarmangalam Birla, has just launched its first hypermarket.
One industry that has definitely been edged into the slow lane in recent months is cars. The brakes have come on because of higher steel prices and because rising interest rates have made car loans more expensive.
Passenger cars have grown by about 12 per cent and that's expected to drop another percentage point or two - that's down from 21 per cent the previous year. Steel prices are going to impact the industry very badly, says Dilip Chenoy, director-general of the Society of Indian Automobile Manufacturers.
Still, even 12 per cent is enviable compared to anaemic developed-world growth rates. That's why most manufacturers are still keeping their foot on the accelerator.
Take the two Japanese giants, Toyota and Nissan. Toyota is building its second factory just outside Mysore in south India and its first vehicles will come racing off the assembly line by 2010.
Similarly, cars will also be steered out of Nissan's new plant in Chennai, south India, in partnership with Renault - by 2010. Both Toyota and Nissan are bringing a convoy of Japanese car components companies in their wake.
The Indian companies, too, are pouring in money and building new temples of industry. Tata Motors commissioned one new truck-making plant last year and will be opening a second later this year for its much-awaited Nano cheap car.
A third plant should be ready later in the year. "There are short-term concerns but in the long-term we are comfortable with the scenario and believe investments need to be made," says a Tata spokesman.
Adds Chenoy: "Everyone's expansion plans are going ahead."
While the auto industry is being squeezed, one industry that seems completely impervious to the global slowdown is telecommunications. India now has 260 million phones, and the number of new phone connections touched 10 million in March and is expected to rocket higher.
"The economic slowdown doesn't seem to be having any effect on the telecom industry. Perhaps that's because there's a huge market still to be tapped," says Ernst & Young analyst Anup Jayaram. India's telecom penetration is now about 26 per cent, compared to more than 50 per cent in China.
Does all this mean India is marching ahead like an unstoppable juggernaut? (The word, incidentally, comes from the giant temple chariot at the Jagannath Temple in Orissa.)
Not necessarily. The road to prosperity still has some potholes, just like India's highways.
Inflation has risen to a 42-month high of 7.57 per cent and is defying central bank efforts to bludgeon it down. Also, the Government has kept the lid on petrol prices, so Indian consumers haven't felt the full impact of US$110 oil. Instead, the state-run oil companies are being forced to take the hit. That's storing up trouble for the future.
HDFC's Barua reckons car components and some export-driven industries like textiles are feeling the squeeze. "Apart from that it's not as bad as people are making it out to be."
Will the mood of optimism continue? Or is it only a question of time before India is brought back to earth by costly oil, steel and food grain? A long and crushing global downturn could alter the picture dramatically.
But in the short run we are all alive, kicking and, it seems, more upbeat than we could have hoped for.
