India Inc to drive GDP growth as global competitiveness increases

New Delhi, Jun 8 (UNI) Sustained growth in net profits and a gradual increase in productivity and capital efficiency will enable Indian Inc to drive the GDP growth to about 8.6 per cent in 2008-09, says a Confederation of Indian Industry (CII) study.

These study findings come amid fear of a possible global economic slowdown, high oil prices, increasing WPI inflation and a tight monetary policy regime, casting a shadow on the growth prospects of the country.

The CII study, however, points out that the business environment has to remain conducive for India Inc to deliver the desired results.

To give fillip to the GDP growth, the study suggested measures including timely implementation of GST, increasing public investment in infrastructure by unlocking government wealth in certain Public Sector Units (PSUs), removal of procedural hurdles for large investment projects to take off and keeping the overall tax rates moderate, as India is one of the highest manufacturing tax-paying countries in the world.

The study further revealed that the corporate sector performance has contributed immensely to India's macro economic fundamentals.

The CII study shows that for the manufacturing companies, there has been a consistent reduction in raw material costs as a percentage of sales during the last eight quarters by 1.3 per cent, even while raw materials' prices have gone up, reflecting greater cost competitiveness of the Indian manufacturing sector.

Further, similar trends were observed by the CII study on power and fuel costs.

In the last eight quarters, while the power and fuel costs have gone up from the supply side, when measured as a percentage of sales, this has come down marginally by 0.1 per cent of net sales from 2.3 per cent to 2.2 per cent over the same period, reflecting efficiency of operations, especially in the manufacturing sector.

Similarly, manpower costs as a percentage of sales have also come down during the last eight quarters. The manpower costs as a percentage of sales registered a decline of 0.5 per cent from 7.1 per cent for quarter ending June 2006 to 6.6 per cent for quarter ending March 2008.

This inspite of increase in wage bill and in employment reflects improving labour productivity of corporate India.

Increases in productivity and efficiency have contributed to improvements in net profits of Indian corporates. Net profit margin, measured as net profits as a percentage of sales, over the last eights quarters have increased from 8.8 per cent to nine per cent.

This is corroborated by the fact that corporate tax collections have increased consistently upwards and for the year 2007-08, the net corporate tax collections have grown by 32.1 per cent, says the CII study.

Observing the corporate sector performance over the eight quarter period and also the increase in corporate tax collections, the CII study has suggested that the micro trends that contribute to the macro fundamentals are strong.

With robust corporate performance and consistent bottomline growth, there is a larger room for capacity expansion, and hence the trend of investment-led growth of the Indian GDP would continue.

UNI MP SR BST1200