The Indian economy is in a slump
The Indian economy appears is suffering from a sharp slowdown that could be exacerbated by the global Coronavirus outbreak. GDP growth has dropped from a high of 8.1% in the fourth quarter of 2018 to only 4.7% in the most recent quarter. At the same time, both consumer and business confidence paint a gloomy picture which has led forecasters like the RBI and CRISIL to cut growth projections to 4.9% for the current financial year. This is substantially below the high single-digit growth rates Indian business had become accustomed to over the last decade or more.
What is more, the slowdown appears widespread. Manufacturing growth has fallen from 12.1% in the first quarter of FY 2019 to negative territory in the second quarter of FY 2020. This was triggered by a very sharp decline in the automotive sector but also weak performance in capital goods. Meanwhile, the construction sector which was previously holding up also appears to be slowing. Further, growth in private consumption, which has been the key driver of India's economy over the last two decades has also gone into reverse.
The combination of these factors along with a credit crunch caused by a crisis in the shadow banking sector and the shock to global growth from Coronavirus presents the most significant challenge to Indian companies in the post-liberalisation era. Consequently, the actions business leaders take today will determine whether they succumb to the current slowdown, simply scrape through or emerge stronger to seize the subsequent upswing.
India Inc. should seize the opportunity in the slowdown
Faced with the current slowdown some Indian companies are already making the kind of knee-jerk reactions like across the board cost cuts and price reductions that can do long-term harm to the business. Such instinctive responses fail to take account of the varied and uneven impact of the slowdown. They also fail to consider the relative performance of individual business units which may have very different competitive and financial strengths. Further, they tend to blind the organisation to the emerging opportunities the slowdown may present. These include the chance to innovate better by listening more closely to customers, to hire high-quality talent that becomes available, or to acquire a struggling competitor at an attractive valuation.
Instead of falling into the trap of reflexive actions, Indian companies should instead take a deep look at both the external environment and their internal strengths and weaknesses to develop the right strategy to beat the slowdown and emerge stronger.
India Inc. can emerge stronger from the slowdown by following three steps
Drawing on insights and experiences from previous slowdowns we have identified three steps India Inc. can take to emerge stronger from the current downturn. First, they must assess the current situation thoughtfully and correctly diagnose their condition. Second, they need to align their strategy to their unique situation. Third, they must act in a concerted and coordinated manner to effectively implement their strategy to beat the slowdown.