In The Spotlight

Economic Revival – reality or mirage ?

Data Quest Article, 10/2009, Ganesh Natarajan

At a discussion on the state of the global economy, CII and industry veteran Nasser Munjee cautioned the audience that the worst may be over but it is too soon to assume that rapid economic growth would follow. “We have seen a systematic destruction of the financial system and we are papering over the cracks.  8.3 trillion dollars have been wiped off US wealth, a huge blow to the US economy – housing prices are flat, unemployment has doubled to 15 million, and the savings rate has gone up to zero to five percent” he said.. UK is in deep decline and Europe is in a distressing state and the demand destruction that this has created has affected China and Indian exports substantially. A second dip and indeed the W effect cannot be ruled out.
India has been largely insulated from the vagaries of the global financial system. After a disastrous third quarter last year, the Indian corporate sector in general and the IT industry particularly  has weathered the storm quite well by slashing costs but there is little or no top line growth as evinced by many of the numbers reported this quarter. . Shedding people has become a practice and that is not a good sign for future demand.  While the Indian economy will look good because of an unexpected savior - the rural economy with farmer wealth has gone up four times primarily because of the price of gold going through the roof and the National Rural Employment Guarantee plan and even the elections triggering new demand which may be temporary. This will result  in the predicted six percent economic growth in India and if infrastructure building happens now when cost of raising infrastructure is rock bottom we could see a sustaining effect and a real boom in the Indian economy in 2010 and beyond.
But what is the outlook for the IT sector? There is a perceptible revival in global demand but some of this could be the result of further cost reduction efforts on the part of our clients which has seen offshore volumes going up. Investment in new and significant applications and processes may still be some months away and if the dreaded W effect does hit with the stoppage of stimulus packages in key countries, it may take till the middle of 2010 for serious revival in industry growth and employment to kick in. This is not good news for the industry, the analysts or the academic institutions that are faced with the rapid decline of interest in placement processes and numbers.
While the industry has learnt its lessons from the excesses of the past and will continue to be watchful in terms of costs, currency fluctuations and vagaries in customer demand, there are many lessons to be learnt by the large number of engineering, IOT and management schools that are today struggling to fill their seats as students become more wary of huge capitation fees with the pot of gold at the end of the rainbow clouded by the slowdown. The institutions that will survive and succeed in the next wave will be those who realize the importance of delivering employable skills to their students and will have to embrace collaboration with the corporate sector to make their curriculum, pedagogy and learning content and projects more focused on the real needs of industry. All participants of the skills eco-system – Government, Academia and Industry will have to work together to ensure that the Prime Minister’s ambitious target of making five hundred million Indians employable in the next decade is realized.

On a more philosophical basis, one issue that is likely to plague economic development is the likely weakness in response to PPP models with most private sector participants becoming extraordinarily risk averse. Government has to play a major role in development in the next few years while private sector does its bit in sustaining and building the market economy. India must become more inclusive and carry her people along and in the long term we have to unravel Sovietism and dismantle institutions that are detrimental to the market economy. A better form of governance and better clarity and strategy is needed at all levels. To end with one more Nasser Munjee gem, a political system that filters out the thoughtful and replaces them with the faithful must be demolished else the old paradigms will continue to drive the country towards mediocrity rather than success !