INDIA Leading executives in India’s property and information technology industries gave warning on Tuesday of a severe slowdown as the global financial crisis spills over into one of the world’s most promising emerging economies.
K.P. Singh, chairman of DLF, India’s biggest property group, said some local property companies would fail if market conditions continued to deteriorate. He urged the government to intervene by cutting interest rates sharply and offering tax incentives to rescue a sector facing tumbling prices and a sharp fall in home loan applications.
Mr Singh said urgent measures to stimulate demand were needed in housing and construction to avoid “what happened in America”.
Separately, S. Gopalakrishnan, chief executive of Infosys, India’s second largest IT outsourcing company, said his sector was suffering a slowdown worse than that after the dotcom bubble.
“It is definitely one of the worst situations we could be in,” he said. “When I compare with, let’s say 2001, we still grew 30 per cent annually when we came off the internet bubble. This time we are looking at 13 to 15 per cent.”
Palaniappan Chidambaram, the finance minister, told delegates at the World Economic Forum in New Delhi that India’s growth rate would bounce back to 9 per cent in 2009 – a projection met with scepticism.
The Congress party-led government, which is facing elections, has taken emergency action to protect its forecast of 7.5 per cent economic growth for this year by cutting interest rates and promising higher public spending.
The property and IT sectors have been hard hit by volatility on the Bombay Stock Exchange, where the benchmark Sensex index has fallen more than 50 per cent this year. Analysts say some property developers’ refinancing needs are expected to exceed their revenues this year. Bhaskar Chakraborty of IIFL, a Mumbai-based brokerage, said: “Lenders are faced with a situation where developers do not have the liquidity to repay maturing debt.”
Unitech, a listed developer, has debt and land repayments of Rs28.5bn ($574m, €456m, £385m) due in the second half but is expected to earn revenues of only Rs23bn in the next 12 months.
Companies have been rushing into the real estate business, snapping up vast tracts of land, often at extremely high prices.
“Everybody and his brother wanted to get into real estate – it was sexy,” said Atul Punj, chairman of Punj Lloyd, a construction company.
“Companies that had an eye on cash flow will be fine but those that only looked at valuations and borrowed against that are going to have problems,” he added.
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Worst I have seen, says Infosys chief
S. Gopalakrishnan, the chief executive officer of Infosys Technologies, said in an interview on the sidelines of the World Economic Forum in New Delhi that the present global slowdown was the worst he had witnessed, writes Joe Leahy.
“It is different, it is probably worse. It is not restricted to one segment or one sector or one region, it is a global phenomenon, it impacts all sectors and the uncertainty is prolonged,” he said.
The IT sector is one of India’s biggest export industries with offshore revenues exceeding $40bn (€31.6bn, £26.6bn) a year. It is also important to the country’s economy because it employs large numbers of the young educated middle-class. These people tend to be the economy’s biggest spenders.
But Mr Gopalakrishnan said Infosys had no plans for lay-offs and would honour commitments it had made to the 25,000 people it had promised to hire this year on top of its existing workforce of 100,000.
He said natural attrition would bring down this number while the company waited to see whether the global economy would stabilise in coming months.
