By SK Nag
An archetypal Belgian Dentist (the euphemistic expression of conservative investment approach) is holding the economy. It never truly benefited society at large. When the COVID pandemic has muted our growth completely across the globe, our immediate response should have been very optimistic, absorbing the shock and embracing the new normal, the business as usual would have moved forward. But reality is not the same.
The industry houses are conserving cash across the organization, leading to a significant shrink in the market economy. Very few companies are making spending decisions to grow their fixed assets enlarging their investment book. The industrial demand is contracted to the demand less market, showing no symptom of immediate return. This forced CapEx-embargo may not or indeed not be the way we can bring our economy back on track. So the need for the End of CapEx Holiday is an untold imperative, which the country should understand.
Overpowering the recession using ‘Power of Consumption’ advocated by industry stalwarts in many forums. Recently, the HUL chairman publicly voiced the concern mentioning strongly to step up industrial spending to stimulate the economy before it is too late. He also highlighted that the ‘cost of not doing’ should not exceed the ‘cost of doing’ to avoid unfortunate resulting stress on the country’s economy in the future. Therefore, he advocated strongly, like many others, the need for an aggressive spending plan from industry leaders, increasing the demand. Growth and controlling inflation have to move in tandem, he added conclusively.
Big-spending decisions must start from somewhere to support the growth of credit demand to get a strong recovery signal in the end. Fortune 500 companies should come forward, lending their supporting hands to rebuild the ecosystem with their high-risk appetite like earlier expediting the CapEx outlay plan without waiting for this pandemic to disappear. CapEx plans need a bold start by them declaring the end of the ‘CapEx holiday.’
Reserve and Surplus in a business balance sheet looks good and might gain strong ratings from international agencies. After some point of time, if lying idle for long, start losing its fungible benefit. Therefore, the real return on investment opportunity is doubtful if the amount of dry powder builds up in the book for a long time. Companies with a start-up funding strategy might have restricted their own CapEx plan in the pre-COVID situation. But in the current economic situation investing in a start-up may not be prudent to have an extraordinarily high yield.
JSW, like many other industry leaders, is currently working on a fundraising plan of $ 1.0 billion to acquire new assets. But the process will make the economy wait to see the glory. Despite Industry efforts, the domestic banks and other lending institutions are currently going through a pandemic ‘debtophobia’ and stonewalling the loan process to these interested parties. Too much compliance demands have failed to gather the momentum to counter the resulting stress on the economy. This negative sentiment is affecting the expansion plan severely coupled with muted NBFC. The cost of money, although it has come down due to a lower repo rate, nevertheless, the availability of liquidity is a question now. ADR & GDR are the only options that may cheer the big corporations to source capital internationally.
Indian economy, also known as the ABCD economy (Agriculture, Bollywood, Cricket & Discount), needs to see a participatory role from all the stakeholders. The Conservative approach should not be completely foregone, but the limit needs a relaxation up to a certain extent. Without that financial flexibility, the recovery is not expected to come. Banks are holding cash; companies hold liquidity, predicting a lot more impending ‘Black Swan’ effect.
The window of opportunity what this pandemic has given to them, who are in high spirit of acquiring distressed assets globally, should be out on the street with the animal instinct of buying spree. The purchasing power of the rupee has gone up recently on account of prevailing distress-phobia. A bold and out-of-the-box spending road map is required to rebuild the organization to become a new normal friendly company in the coming days. It will capitalize on ‘More Rupees per Rupee’ of invested assets if the time is wisely monetized.
(SK Nag is Chartered Engineer, Energy Expert and industry mentor. The views expressed are personal opinion of the author. He can be reached at saibal.iim@gmail.com )
