For years, Indian business leaders have been generous in their rating of the domestic economy even while holding out visions of a bright future for their companies.

Well, the future is here and it is not pretty. All the relevant indices of economic growth are blinking an alarming red and the optimism of the past has given way to despair. None of this is news, nor can business leaders protest that they have been caught by surprise. Yet, for some reason, corporate chieftains have been sending signals that negate the reality on the ground.

A 2017 PwC survey, “Inside the minds of CEOs in India", reported that 71% of India’s CEOs “are very confident of their company’s prospects for revenue growth over the next 12 months as opposed to 64% in the previous year". As late as June 2018, for KPMG’s fourth annual India CEO Outlook, 91% of the 125 CEOs surveyed said they were confident about their company’s growth prospects, while 81% were confident about the growth of the industry they are a part of.

The contradictory messages that emerge from such surveys are truly baffling. Just a year on from such surveys, many of the same CEOs are decrying the lack of demand in the economy and asking the government for a stimulus. Are we to assume that India Inc.’s denizens speak with a forked tongue or that they don’t have a surer grip on the business environment?

Indeed, the real surprise is why they are shocked at the economic slowdown that is upon us and is now acquiring menacing proportions. After years of insisting that they are okay, barring a slight loss of pace thanks to demonetization and the GST flap, they have set upon the alarm bells with ferocity.

What makes this ostrich-like behaviour truly bizarre is that, like a gathering storm whose fury is visible long before it unloads its havoc, this slowdown has been in the works a long, long time.

Real estate has been bleeding for nearly a decade with consequences for construction, among the largest employers of non-formal workers in the country.

Credit growth, one measure of investment, after peaking at a stimulus-fired 21.5% in 2010-11, has been declining sharply over the last eight years and is down to 10% for 2017-18. Similarly, gross fixed capital formation as a percentage of India’s gross domestic product, after peaking at 35.6% in 2007, has also fallen steadily over the years since.

The fault lines have been clearly visible. The alarm calls started with rising non-performing assets in banking and finance, and then hit the auto sector, a bellwether for the economy. Now we are seeing sales of consumer products such as biscuits and underwear being affected.

That last, as The Economic Times reported, is significant. It acts much like the Hemline index, or the Men’s Underwear Index, a favourite of former US Fed chief Alan Greenspan, in signalling the health of the economy on the premise that men treat underwear as a necessity rather than a luxury and tend to reduce purchases of it only if in the midst of a severe economic downturn.

In the consumer’s mind, too, there is a hierarchy of spending on products and services. In good times, people buy inessentials and more of the essentials, while in bad times they postpone buying inessentials and limit their purchases of essentials.

Sure, there have been a few shocks to the economy in the last three years that have queered the pitch for businesses, but to say it was purring along nicely before that would be a gross exaggeration. Let’s not forget that one of the main reasons for the disenchantment with the previous Congress-led UPA government, one that provided much economic momentum to the Modi campaign of 2014, was the complete drying up of investment by the private sector under the second UPA regime.

Its overhang, after an initial surge of optimism, continued to cloud investment and demand through 2016-2018 and what we are seeing in 2019 is only a more widespread manifestation of this.

Nor should this have come as a revelation. The mess in banking, visible for years, was hardly going to be contained. Industries today are inextricably linked and each one is a node in the overall networked ecosystem. Different entities influence one another and their business landscape by competing and collaborating. Inevitably, they are also subject to external disruptions, to which they react individually but also collectively.

A consumer demand slowdown in automobiles impacts the likes of Maruti and Tata Motors, but it also impacts companies in steel, tyres and in turn rubber, as well as diesel-engine makers like Greaves Cotton and Cummins India and also lubricant manufacturers like Castrol. In turn, anything and everything impacts the logistics business. Technology, telecom and media have been interdependent for years now, but with Reliance Jio announcing its First Day First Show scheme, multiplex owners are also feeling the heat even if the impact will show up on their books only after a while.

Prime Minister Narendra Modi’s vote of confidence in Indian businesses notwithstanding, even if in some fervour of patriotism generated by his Independence Day address they do start investing in new projects—or even in upscaling existing ones—it will be years before we see any benefits emerging from that. The current grief is here to afflict us for some time, and its causes can be traced to the past.

Sundeep Khanna is an executive editor at Mint

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