Tuesday, December 27, 2011

2011: The year of corporate gloom


At the forefront of the battle between government policy and corporate ambition was the strident Jairam Ramesh whose tough 'go-no-go' policies on mining practices and strict enforcement of environmental norms practically brought clearances and mining activity to a standstill.

2011 was a difficult year for the corporate India as it battled a policy logjam at the centre along with blanket ban in mining, slow reforms and coal shortages in the power sector – all of which brought growth to a grinding halt and shattered sentiment among the head honchos of the corporate world.

“There is uncertainty in terms of approvals, land acquisition, availability of power, environmental clearances as a result of which no new investment is taking place,” said Ajay Piramal, chairman of Piramal Healthcare.

“We should be achieving 10 per cent growth with good government support and Parliament working. But the morass that we are in at present, 7 per cent might be difficult,” said JJ Irani, former director at Tata Sons.

At the forefront of the battle between government policy and corporate ambition was the strident Jairam Ramesh whose tough 'go-no-go' policies on mining practices and strict enforcement of environmental norms practically brought clearances and mining activity to a standstill.

High profile projects like Lavasa Hill City and crackdowns on illegal exports of iron ore in states like Karnataka and Goa further compounded problems for the industry.

“We have lowered our guidance by 14 per cent,” said Sheshagiri Rao, Group CFO of JSW Steel.

But it wasn't just the mining and steel majors who bore the brunt. Coal shortages and slower clearances meant the power sector getting a virtual tailspin.

With projects scrapped, losses mounting and fuel stocks so critically low, large parts of the country even witnessed blackouts in the month of October.

Lack of reforms in distribution and political compulsion to keep tariffs artificially low have exacerbated problems with some developers even vowing not to expand their power portfolios until further reforms are brought in.

“We are not going to do any fresh power projects until the 2nd reforms in the sector,” said GM Rao, chairman of GMR Group.

The cascading effect of these problems clearly have become evident in the capital goods space too with the country's largest private infrastructure company L&T lowering its growth guidance to a mere 5 per cent as a double whammy of low demand & a hostile macro environment hits growth.

As we end the year though there are fresh assurances coming in from the government and a rebuke for an increasingly cynical industry. The Prime Minister speaking at the latest meeting of Council on Trade & Industry said: "It is a little disappointing to sometimes hear negative comments emanating from our business leadership or be told that government's policies are causing slowdown and pessimism. Such comments have added to uncertainty and have emboldened those who have no stake in our economic growth."

But assuring industry he added that: "That our government is committed to create a growth oriented economic environment."

With not much headway in crucial reforms though these assurances mean little and the New Year does not promise to begin on a cheery note either.