The national and international economic environment seems to be getting from bad to worse by the week. For India, the current political turmoil and uncertainty could not have come at a worse time.
Alas, it may well be blessing in disguise if the government loses the vote in parliament on July 22, generating a hope - howsoever slender it may be - that the next general election may throw up a more functional coalition government.
With stock indices touching 15-month lows, and consumer spending sentiment getting weaker as inflation steadily rises, what should the response of private (and public sector) businesses be while they wait for the good times to return?
To start with, almost all should seriously consider getting back to the basics. In the heady times not so long ago where India and Indians could do no wrong, far too many companies including some of the largest ones embarked on a multitude of diversifications.
Many of these diversifications, of course, would have had sound business rationale. However, no one had forecast such a rapid deterioration in the economic/political environment in India and hence prudence may be the better part of valour this time.
Focusing on core (not only core in terms of operating sectors but also core consumers/customers, and markets) businesses and leveraging core strengths to tide over the tough times would not only prevent erosion of the strength of the business but also keep them in good shape to take advantage of the many opportunities that India will surely offer in the coming years.
Textile and many other manufacturing companies have been becoming real estate developers in the last few years in the wake of skyrocketing real estate prices. Most of these promoters had little or no experience of the real estate business, and many may now be stuck with poorly performing manufacturing operations and unfinished real estate projects.
They may still do better if they were to return to what they were so good not so long ago, and refocus their energies and expertise on making their traditional businesses stronger.
Consumer goods and services businesses must very urgently and innovatively look at new means of stimulating demand. Absurd though it may sound, rising input costs cannot be passed on to the already demoralised consumers and customers.
Indeed, this act may well further depress consumer demand, leading to a further downward spiral in the fortunes of many businesses. So far, there have been few visible signs of the same.
The airline companies continue to raise fares even as there is a steady decline in the number of flyers, the premium and not-so-premium hotels are still publicly holding on to their highly inflated tariffs even though the occupancy percentages are steadily slipping, real estate developers and the consultants in that sector continue to come out with unbelievable surveys on the steady rental and capital values of properties in major cities even if the actual transaction volume has reduced to a trickle in recent months, the shopping mall and other retail, commercial, and residential property owners
are still unwilling to openly drop prices to attract tenants, and most fast-moving consumer goods manufacturers have actually raised prices or reduced spending on promotions to temporarily shore up the bottom line.
Clichéd though it may be, but product and marketing innovation (and not quality/value reduction to achieve price reductions) is the key to succeeding in such difficult times.
Many companies have indeed taken up cost-reduction measures in earnest. This is certainly the need of the day. However, taking away any quantum of value from consumers should be the last resort.
Adoption of technology, a higher degree of automation, collapsing of hierarchies/flatter organisations to reduce head office/corporate wage bills, etc. and relocation of manufacturing facilities to lower-cost centres (and there are many in India but few prefer to go there on account of real and imagined difficulties) are some of the areas to focus on for achieving reductions in operating costs.
Considering the fact that this speed of change in the external business environment has been exceptional, business leaders will do well if their own response to these incoming challenges is speedier. Less time and money should be spent on planning, and much more on more effective execution.
The good news is that India's promise remains. The very fundamentals that made India appear so attractive to the Indians and the foreigners are very much intact. There is still adequate momentum in the economy to see through a bad year or two.
GDP growth rate can still be a respectable (under the circumstances) 6-7 per cent in the next fiscal. What is needed at the moment is some extra wisdom and more tenacity to get through the current turbulence!
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