senior articled assistant
623 Points
Joined June 2009
Looks like India Inc. has left the ghosts of the financial crisis far behind it. Most companies which were wary of spending at the height of the crisis are now in the mood to loosen their purse strings. Many expansion plans appear to have been lined up across industries. This means that India Inc. could be entering a new growth phase.
The need to expand and grow business would lead to creation of more jobs and demand for machinery and infrastructure. All this would then culminate in a strong growth of India's GDP. So which companies are planning to go on an expansion spree? As reported in a leading business daily, companies across industries such as cement, paper, tyre, paints, automobiles and consumer durables have in the past three months announced capex plans. These are totaling to around Rs 500 bn over the next 2-5 years. What is more, many more companies are still in the process of firming up plans. Yes, agriculture was a letdown this year. But industrial production has certainly picked up. Therefore, if agricultural activity picks up next year and earnings of Indian corporates grow nicely, it would certainly go a long way in bolstering India's economic performance.
What companies need to be careful about though is that in their exuberance of expanding, they do not stretch their balance sheets. The ill effects of such a practice were there for everyone to see when the crisis unfolded. Why companies, even countries are being weighed down by excess debt. And in India especially, since inflation is soaring, the possibility of higher interest rates looks increasingly likely. Therefore, as long as the Indian companies stay well within their means there is no reason why they should not grow at a strong pace going forward.
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