Business Briefing 07/11

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The economy's hope and hype; Subbarao: Seeking Fort Knox; and LG Electronic India MD on what he learnt from the slowdown

Hope and Hype

Despite the noises made by sections of Indian industry of a smart economic recovery, the real picture, it appears from Finance Minister Pranab Mukherjee’s recent utterances, is not all that rosy. A combination of poor monsoon, less-than-expected consumer demand and continuing weakness of exports means that the FM has no choice but to carry on with the economic stimulus driven largely by government spending. “The fiscal stimulus will have to continue, to allow its impact to fully run through the economy,” Mukherjee said at the annual Economic Editors conference. During the second quarter of the fiscal, several large bellwether Indian firms reported better profits, primarily due to cost cutting measures, but their sales were up only marginally—a sure indicator that there’s still a long way to go for a sustained recovery. Don’t believe anyone who says happy times are here again.

Subbarao: Seeking Fort Knox

Reserve Bank of India Governor D Subbarao has done something the average Indian housewife would readily approve of. The RBI’s decision to quietly buy 200 tonnes of gold worth $6.7 billion from the International Monetary Fund (IMF) has surprised many around the world. Although Indians are the world’s largest consumers of gold, in the form of jewellery, bars and coins, it wasn’t much sought after by the RBI. Of India’s $285 billion forex reserves, only $10 billion was estimated to be held in the form of gold. In fact, the proportion of gold as part of its total foreign reserves has gradually declined over the years, from 20 per cent in 1994 to below 4 per cent now. The latest tranche of gold shopping increases its proportion to 6 per cent, making India’s central bank the tenth largest accumulator of aurum.

While the sale would provide the cash-strapped IMF with much needed liquidity to enable low interest rate lending to poor countries, India’s purchase is seen as a move to diversify its reserves in a volatile currency market.  But some also see a geopolitical motive behind the deal.  India, like China, is also seeking closer ties with the IMF to assert its authority on the global economic stage. The bullion market’s eyes are on China, which is keen on buying some of IMF’s gold in an effort to shift some of its $2 trillion plus forex reserves away from the US dollar.

What I Learnt From the Slowdown

—Moon B Shin, managing director, LG Electronics India

» During these times, investments in human capital are not likely to be a high priority for companies whose very survival is threatened by the global downturn. But for companies with strong balance sheets and compelling business models, the economic downturn presents important opportunities to strengthen their HR management capabilities and position them for the inevitable ricochet. 

» No downturn is perpetual and no boom is permanent. It requires understanding external market uncertainty and internally managing a talent pool that is anxious and perhaps distracted because of the uncertainty. Thus, what an organisation requires is a better and more thought out approach towards its employees. 

» Each focus area for business poses distinct challenges. Team managers and company directors have to look at how they can drive utilisation, control discretionary spending and HR budgets, improve employee productivity, tighten the linkage between performance and pay, understand what engagement means in today’s context, explore new work design models, drive and reward innovation and recognise and retain key talent.

» Thus, we can say that at this stage of economic conditions, there has to be innovation in an organisation’s approach. What is required is identification of key real employees and their retention in the organisation. People need to hear the truth, understand the strategy of leaders, and assume responsibility for their actions relative to the plan.