ECONOMI RE ESSION AND INDIAN

INDUSTRIES & BUSINESSES

Dr. . A. Somwa nshi

DIRECTOR
MGM's Institute of Management N-6, CIDCO, AURANGABAD Tel.
0240-2473889, 2483405
E-mail: director@mgmiom.org
 ECONOMIC RECESSION AND INDIAN
INDUSTRIES & BUSINESSES

Dr. S. A. Somwanshi
DIRECTOR MGM'S I nstitute
of Ma nagement, urangabad

Recession has hit all shores across the globe - the only difference in its severity. India
being on growth trail, would not in long term be as adversely affected. There is some
optimism for, after a downturn - definitely upturn.

At present, the impact of economic recession on the Indian industries & businesses is
mixed one.

a) There are still some industries & businesses who continue their growth and
b) Those affected are on downward trail.
By late, November 2008, there was all round recognition that the Indian economy needed
counter - cyclical measures to boost investment. Hence, Indian Government has unleashed a
series of measures to shield the economy through fiscal and monetary measures - too little,
too late.' (Refer to enclosure I). Howe er, ASSOCHAM in a recent press statement noted that
Job cuts would be needed to keep costs under control across the steel, cement, aviation,
Construction, real estate, IT-enabled services and financial services sectors. India's Job
market may be in turmoil as the economic slowdown forces companies to downsize, but
some following industries are defying this trend.

US based Merck announced a cut of 7200 Jobs globally is doubling its head count to
1600 in India. Pfizer & Glaxo - Smithkline (GSK) is cutting 10% (10,000 Jobs) world wide,
would add 200-250 to its current staff strength of 2000. UK major GSK plans to launch new
drugs of Rs. 33,000 crore in Indian drug retail market and strengthen its 3,000 people team.
Its exercise to recruit 100 people Pan-India is underway.

Swiss major Novartis will create Jobs for lOO people in shifting of its overseas
plants to India despite its decision of Lay off3750 staff globally.

US based biotech drug maker Genzyme, a recent entrant will hire 50 people in India
in the next 12 months.
Oil & Petroleum Industries:
ONGC, the largest Government owned oil company by market share has announced
80 to 100% Jump in the salaries including a range of perks and facilities to its 30,000 top
brass employees to avoid the attrition problem. Reportedly private oil marketers such as
Reliance Indu tries Ltd., (RIL) and Essar have planned to reenter the retail market now as
global oil prices have substantially slumped.

This Sector is one of the few sectors that still is hiring despite the slowdown. The top
five IT firms are recruiting over 80,000 people this fiscal year. A recent Economic Times
Report says that the top two finns Tata Consultancy Services (TCS) and Infosys
Technologies are taking aptitude test and exploring learning ability. Tes will hire about
30,000 _. 35000 new recruits and 12,500 through its acquisition of city group Global
Services.

NR Narayana Murthy observed, 'We would be moving from the era of price for
performance to performance for price. Trying to move from fixed cost to variable cost and
indirect to direct cost. So that every thing becomes part of the project.2 Infosys has also taken
a strategic decision to honour all the 25000 Job offers already made. Wipro had added about
8,000 people in the past 12 months. HCL had Paris - headquartered MNC will have 21,000
new employees at the end of this year and 25-35% addition to next year. Similarly, WNS
Global Services added 6,000 as on September, 2008.

Life Insurance industry witnessed a solid 66% Jump in capital deployed during April
- December, 2008 at Rs. 23, 271 crore. The sector reported 16% growth in total premium
income to Rs. 1,21,392 crore over corresponding last year despite 4% decline in the first
premium income.3

According to ET report Insurance sector could hire upto 3,00,000 financial planning
advisors and 30,000 managers by the end of current year. The private players have recorded
a growth rate of around 42% collections in first half of the current fiscal as per the Insurance
Regulatory & Development Authority (IRDA) data.

Max New York Life Insurance Company hired 21,000 agents and 8,000 managers in
the past 6 Months. By the end of 2009, it plans to add 70,000 agents and 10,000 employees.
Over the next few months Insurance sector looks at boosting its employee
level by about 50%. Needless to say, with the recent market meltdown, both the insurance
companies and customers have felt the need to shift to traditional products such as money back
plans, (fixed returns), term life and Endowment plans as against investment products like ULIPS.
4

Spa Industry :
Tourism industry in general braces for a summer chill, city hotels and standalone spa
outlets that are warming up 1520% Jump in business in the past 3.4 months.
The Indian spa market, tough at an estimated $ 184 million (a fraction of $ 60 billion of
worldwide wellness industry (as well as $ 250 billion if spa related spheres like hospitality,
tourism and real estate are added).5 Beauty expert shahnaz Hussain says her day spas have been a
surge in business by 30% in the last few months.

Banking & Financial Services:

ICICI faced a loss $ 28 million. SBI exposed to credit derivatives- Rs. 40 billion Bank of
India - Rs. 12 bn, Bank of Baroda - Rs. 6 bn profitability.6 Recently, HSBC and the Citibank
have announced lay-off as a measure to reduce operative costs. HSBC's Job cut came in its
merchant banking and institutional business divisions . Citibank's subsidiary has pruned its
Workforce by 600 so far this year. Morgan Stanley laid off more than 100 people in India in the
past few days - and is sounded to have shut down its structured finance business here. Flls have
started making bonuses discretionary for senior executives at the time of Joining while in others
asking their senior officers to take voluntary bonus cuts. Most brokerage houses have cut
employee compensation by 2040%, worst hit employees in retail divisions.

Those S & MES depending on overseas markets, as drop in demand for products, have
adverse effects on local workers & artisans. Sumant Batra, vice-president of INSOL says -
dwindling orders may force S & MES to downsize and lead to large scale Job losses and even
force insolvency on those severely hit.

It was reeling until recently under fual prices have a small respite due to the faU in the
crude prices and Government subsidy. Caused by recession, demand for our travel due to cost
cutting by consumers, many flights have to run with fewer passengers and
incurred huge losses. In 3rd quarter average capacity dropped about 8% but passenger
numbers fell by 20%. The industry estimates losses of Rs. 9000 crore in 2009-10.

Infrastructure related cost with on ground and in-air congestion causing, costs are
rising. Moreover, now airlines are to levy a Development Fee on passengers.

Hence, strategy - unless the aviation cost structure - becomes more supportive, a
volume based no-frills airlines would find it difficult in India. Therefore; consolidation
allowing a closer match between capacity and traffic is option. This is for more sustainable
fares and thereby a viable industry.?

Result is forceful lay-off- Jet case in reference. The effect is seen in people's choices
on spending, preferring to opt for railways to airlines for domestic travel.

The average mid-range home buyer is unlikely to rush into home buying with any
immediatancy in the current economic scenario with high inflation rate and a shaky Job-
Market. This sector has Rs. 75000 crore outstanding loans.

City based retail broking firm, India Infoline, fears the liquidity situation, developers
could worsen further if banks refuse to refinance maturing debts of real estate companies and
maintain the 'credit squeez' on their accounts. Rating agencies have downgraded 6 major real
estate companies on concerns of high debt and uncertain cash flows. The sales of property
companies have fallen to by 70 - 80% and drastic drop in net profits. Developers acquired
loads of land where money is blocked. The stocks of tigher players of the market - Unitech
dropped by 92%, DLF by 80%.8

To encourage foreign capital into the sector, Government relaxed norms on external
commercial borrowing (ECB). RBI's incentive to all public and private banks reduced
interest rates of home loans upto Rs. 5 lakh to 8.5 % and 9.25% for loans between Rs. 5-Rs.
20 Lakh.9

In view of the crisis RBI has reduced risk weight on commercial real estate from 150
to 100%.10 It has ordered that a loan to a builder is restructured, the banks must classify the
account as NP A. The bankers say demand for home loans has fallen because buyers are
waiting for property prices to fall and also Interest rate to fall. Until and unless housing
prices are reduced along with reduced home loans rates, real estate sector may not recover
fully from the recession. I I
/
cost cutting measure. About 60 employees may have to transition out of Delhi office. The
slowdown has definitely affected many industries and expenditure on advertisement has been
cut. FTC 11 -- KPMG Report reads as - sectors such as TV, print, Radio and outdoor media
which depend on advertising revenues will see lower CAGR of 12% over next five years
unlike 17% for the last three years. 12 In immediate future, media corporates are likely to
focus more on operating margins and avail of opportunities for consolidation while building
T on core strengths.
he
UTV,
the The president of Reliance Entertainment, Rajesh sawhney said Government is
media considering formulation of a policy framework for 'Headend - In-The Sky' (HITS) and
and reduction of license fee for DTH to 6% of gross revenue from existing 10%. As estimated -
entertai of the 115 filims that hit the theatres in 2008, as many as 100 flopped.l3 Experts fear a slow
nment growth but also think that the people would be drivan to go to the movies to unwind from the
compa stress and strains. The 'Great Depression' of the 1930 is the historical testimony.
ny with
According to marketers, the producers should Explore the other sources of revenue
interest
for income from new technologies such as mobiles, broadband networking rather than spend
in TV,
on expensive multiple tickets, for the viewers who prefer DVDs, VCDs and DTH as people
films,
wish to opt to be the 'Stay at home'.
gaming
and The challenges before CEOs today are how to access capital, more towards Zero
digital budgeting, broad base advertising by looking at regional markets, analyse consumer behavior
media and build new media strategies. Analysts view that Indian M & E industry stood at Rs. 58400
is crore and projected to be of Rs. 1,05,200 crore over next five years. 14 India would be one of
shuttin the key drivers in pushing the global entertainment and media industry to US $ 2 trillion by
g down the year 2011.
its
Delhi The present crisis in a way serves an oppOliunity to rethink the existing paradigms.

office Domestic demand needs to be augmented by massive investment in social infrastructure like

as a health and education as well as by sectoral targeting in the labour intensive activities to make
the growth process more sustainable and more inclusive.15
/ Goswami - Too little, too Late - Business India, March22, 2009, pp - 44.

2 - Sarkar Ranjv -- Tough Times Cail for Tough Measures - Business standard, March 9, 2009,

pp-21.

3 - Economic Times Bureau - Life Insurers beat slowdown blues -- Economic Times,
Select
Refer April4, 2009, pp -9.
ences:
4 - Mysore V. S. - Redefining Insurance sector in Times of Slowdown - Economic Times,
(By
March 6,2009, pp -9.
courte
5 -- Ambwani M. V. - No Recession Blue for Spa Industry - Economic Times, March 11, 2009,
sy of
pp -14.
Indian
6 - Ref. # 15 M - 2009 -03 09 - 01.
a
7 - Editorial - Consolidation is The Mantra - Slowdown crippling Smaller Airlines -
Times
Economic Times, March 11,2009, pp -- 8. 8 -
-
www.indianrealtynews.com.
Jahna
9 - www.timesofindia.indiatimes.com.
vi
10 - B - Shravana Kumar - The Indian Real estate Hit by Global Slowdown - Portfolio /
contra
organizer, May, 2009, pp -5.
ctor
11- Choudhary Ishita - Indian Real Estate sector: A Doorway to a Boom or Crisis Portfolio
vol. 3
organizer, February, 2009, pp - 58.
Issue
12 - Mohan Devendra - Minus the oomph and Action - Business India, March 22, 2009, pp -
11,
132.
Dec -
13 -- K. Gopalan & N. Raghavendra - Business of Bollywood - Nayagan-Economic Times,
Jan.20
April 4, 2009, pp - 12.
09) 1 -
14 - Op-cited - Mohan Devendra, pp - 132.
Anupa

m 15 - Kumar Nagesh - Look inwards to Mitigate the crisis - Economic Times, March 6, 2009,

pp - 10.