India Growth story dented or intact?

The way i feel it, India growth story began with Software sector. Seeing Indians in United States and few consulting firms like infosys and Wipro, West started looking at India and wrote many research notes upto year 2050. Fortunately or unfortunately most of the highly paid jobs are in Software sector and work force in other sectors too saw better pay hike but not as high as work force in Software sector. Most of the growth story depnded on the software sector work force which had high disposable incomes.

With West in turmoil where consumers almost stopped spending and big investment banks loosing their shirts on securities tied to mortagages, spending on software will take a beating. Financial services is where most of spending happens in software and if they are in a mess, then software sector will be logical next to fall creating a chain reaction and spreading its ugly tentacles to outsourcing industry in India.

The lofty projections we made on Software exports will be next to nothing with crippled Topline (outsourcing contracts reduced/canceled) and bottomline (due to currency fluctuations) of our Software companies. Adding to this agony is rising salaries which will become unsustanable going forward.

If thousands of employees are given pink slips, then the consumer spending will be reduced back to the levels a decade ago and this will definitely dent our growth story.

Real Estate will take a big hit especially the prices of Gated communities where prices have soared to unsustainable levels. Not to mention the default rates on loans already taken by work force in software sector.
The banking sector will take a hit with this fall out which is already reeling under the stress of their exposure to US Subprime market. These banks especially ICICI which are using Mark To Market or Mark to Modal techniques to write-off is flawed. The underlying secutities may have significantly lost their value and the total write-offs may go upto Billions of Dollars causing a turmoil in our banking sector.

With Inflation rising and Retail loan rates at its highest, the GDP growth is no doubt going to 7-8% levels.
Forget about double digit growth for another 2 years.

This being an election year, the Congress government took a populist route and waived the loans for Farmers causing enormous deficits which will have an effect on inflation too and push our Countries growth ona downward spiral.

The governments first priority is to safeguard existing jobs and create newer ones.
We need companies who can manufacture products here in India and sell it to Indians thus creating jobs.
If Software industry didn’t realize its follies by now, then they are doomed. They need to change their business model and be more professional and take risks in diversying. As of now, they just behaved like mom and pop street corner shops and never exhibited any leadership qualities in developing enterprise strength products.
Infosys and Wipro are to be blamed for this. Despite being cash rich, they never dared to venture out of their shells. They minted money as long as Rupee was cheaper and weaker and misused Indian talent to their advantage. They didn’t learn anything from Western software companies. Instead they just concentrated on labor costs differentials and minted money.
The change has to come and this is the time, otherwise it will not be too long when Indians start hating Infosys and wipro.

The political parties need to evolve too to keep the Indian growth story intact. They can’t recklessly misbehave with Indian tax payers. They need to realize that they are our money managers and can’t act in a way that jeopardises our future. They need to spend more time looking at policies which wrongly incentiivized our software sector. They need to gove similar privillges to other sectors too. Its time, that our lawmakers pay attention to all the Bills introduced and amend it if is not in the intersts of Indians. As of now, they merely attend Parliament to take a nap.

to be continued…..

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