The country's top bankers have warned the government that if it does not resume economic reforms at the earliest, there are chances the current slowdown may turn into a slump, three people familiar with the matter said.
In a meeting last week with C Rangarajan , economic advisor to Prime Minister Manmohan Singh, CEOs of some leading banks pointed out that foreign investments are slowing, Indian corporates are deferring projects or moving them overseas, and some are even defaulting on loans as cost of funding rises at a time profitability is getting squeezed due to high input prices. "Slowdown is a concern. There is uncertainty on policy implementation and we see corporates putting new projects on hold. And that is what we conveyed to the government," said a banker present at the meeting on condition of anonymity.
Some of the bankers who attended the meeting include Aditya Puri, chief executive at HDFC Bank; Shikha Sharma, chief executive at Axis Bank; S Raman, chairman & managing director at staterun Canara Bank; KR Kamath, chief of Punjab National Bank; and MD Mallya, head of Bank of Baroda . Some corporate executives were also present. Indian companies are getting whipsawed by high input prices and rising financing costs as the central bank is poised to raise policy rates for the 10th time in the past one year on Thursday.
Companies, which benefitted from the early stages of inflation that translated into higher sales and profits, are now feeling the pinch as the same effect is holding back consumption and making raw materials costlier. And bankers, which benefitted from high demand for loans and artificially low cost of funds, are feeling the heat as profitability gets eroded due to soaring deposit rates. "Slowdown in investment demand appears worrisome," said Shubhada Rao, chief economist at YES Bank .
"India Inc seeks reform-oriented policies to provide fresh impetus. Global uncertainties, higher commodity prices and a rising interest rate environment in creating fresh capacity are adding to negative sentiments."India's industrial production growth slowed to 6.3% in April from a year earlier after an 8.8% advance in March, as demand tapered off. Fourth-quarter GDP growth was at 7.8%, lower than expectations of an 8.2% growth, and a third-quarter rise of 8.3%. The deceleration in investments was a shocker, as growth slowed to 0.4%, from about 20% a year earlier.
Source: www.economictimes.com
Ravi Jhawar
Summer Intern-Technical Analyst
DENIP Consultants Pvt. Ltd.
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