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Tackling the economic crisis

Tackling the economic crisis
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First Published: Thu, Apr 09 2009. 09 29 PM IST

Structured approach: Team members of Stern Stewart India Pvt. Ltd—(from left) Prakhar Rastogi,Vikram Devare, Rahul Somani, Ashish Srivastava, Vishal Mehta, Ashwini Bobhate and Santosh Rangnekar with S
Structured approach: Team members of Stern Stewart India Pvt. Ltd—(from left) Prakhar Rastogi,Vikram Devare, Rahul Somani, Ashish Srivastava, Vishal Mehta, Ashwini Bobhate and Santosh Rangnekar with S
Updated: Thu, Apr 09 2009. 09 29 PM IST
The government can play a significant role to ameliorate the situation in India. Or can it? It is not a surprise that the overwhelming expectation from the government is cheaper capital (see graph). Will this expectation be met? Will the policymakers be able to avoid the distraction of the elections to focus on the economic agenda? Answers to these questions are unlikely to be affirmative.
Structured approach: Team members of Stern Stewart India Pvt. Ltd—(from left) Prakhar Rastogi,Vikram Devare, Rahul Somani, Ashish Srivastava, Vishal Mehta, Ashwini Bobhate and Santosh Rangnekar with Sanjay Kulkarni (centre)—at their Mumbai office. Ashesh Shah / Mint
While the global economies are working towards a grand global plan to restructure the rules of the game, individual countries such as India aren’t doing enough soul-searching. The general election should ideally have been a spark to light the debate, but our politicians are more likely to stick to form, going up and down the country making promises they cannot keep. The current silence on what India’s economic strategy in the post-crisis world should be is rarely broken.
We are possibly the only country living in the luxury of not having a full time finance minister in such unprecedented times. Today, there are enough spin doctors working hard to paint a rosy picture to suit political and not necessarily the economic objectives. The government should ideally utilize this opportunity to drive the much-needed change and discipline to cut out inefficiencies ingrained in our system. Is there a will, and is there a clear agenda?
Similarly, while around 60% of respondents expect a fiscal stimulus, we find that our government has done little. The stimulus provided so far is insignificant in comparison with what we observe in some other economies.
On the other hand, we find that the government’s profligacy has increased and the fiscal deficit which was 2.7% of the gross domestic product (GDP) according to the interim budget, has risen to around 6% of GDP. Can India afford this?
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Given the uncertainty of election outcomes and political situation thereafter, it is quite likely that India may lose out on one full quarter before the new government is in any shape to drive policy changes—it may well be too late and may reflect in India not meeting its long-term expectations.
The ‘so what’ of the exercise
We must appreciate that the recent downturn has and will affect different businesses to a different extent and in a unique manner. The force and speed of the global downturn have sent companies reeling, and many senior managers have not yet figured out exactly how to respond. Even fewer have identified specific ways to address the problem. Similarly, different businesses are likely to get out of this tunnel at different points in time with refined or depleted set of capabilities. The landscapes and rules of the game in different industries are likely to change, albeit to different extents. So what are businesses expected to do?
We propose a three-pronged approach:
One, diagnose the situation—identify the exact problem or opportunity, and where and how large is the problem or opportunity. Ideally, evaluate the full range of downturn scenarios—including the most damaging set of circumstances. But do not ignore the best case scenario. In essence, get an accurate read on the environment and the businesses’ position in it. This will not only provide clarity and confidence, but will also prevent inappropriate decisions from being made. Better outcomes are possible if this is applied at a micro level within the organization—say across business units, across products, across key customers, or geographies as may be required to provide a clearer assessment of the situation. For example, the IT sector may need to evaluate the situation across its key customers, where ongoing business from the customer and in some instances survival of the customer itself could be a question.
Two, armed with reasonable clarity and confidence, evaluate the potential actions—understand where, when and how to address the problem or tap the opportunity. Simply prioritize the potential actions and focus on limited ones that have maximum potential to make an impact and can consume management “bandwidth” appropriately—simply put, “reap the low hanging fruits”. Include actions to protect financial fundamentals—protect cash, manage credit risk. At the same time, evaluate the near-term and long-term trade-offs and hunt for opportunistic bargains in acquisition of businesses, assets and resources. Winners are already making moves to grab the rare opportunities—IBM targeting Sun Microsystems Inc. in the IT sector or Nomura Holdings Inc. acquiring Lehman Brothers Holdings Inc.’s Asian operations in the much-suffering financial sector are good examples.
Three, execute with alacrity and confidence. Superior execution is arguably most critical and early outcomes can help gain the confidence of all stakeholders. Put together a crack team to monitor early warning signals and push initiatives as the scenarios unfold. Evaluate the ease of implementation, financial impact and timing to prioritize actions that provide the balance between near-term and long-term implications.
Remember, businesses that adopt a structured and thought-through approach are likely to get out of the tunnel faster and in better shape than others.
Graphics by Ahmed Raza Khan / Mint
Sanjay Kulkarni is head of management consultant Stern Stewart’s Indian operations. Your comments are welcome at feedback@livemint.com
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First Published: Thu, Apr 09 2009. 09 29 PM IST