The CEO mindset

By S. Swaminathan

Chief Executive Officers (CEO's) of corporates at the global level are often caricatured as cannibals with a ruthless urge to convert every adversity into an opportunity and that too at the expense of their competitors. Their operational creed is dictated by the saying that ``when it gets tough, the tough get going''. Implicit in this creed, among other things, is a certain enlightened, empirical wisdom about a process of interaction between the business world and the economic environment. It is not the economy which decisively influences business but very often it is the other way about.

As the U.S. economy during the last two decades clearly shows, the great leaps in technology unleashed by corporate businesses led the way and the prosperity of the economy came as the dividend. It is a different question how the current phase of slowdown in the U.S. economy (which pessimistic analysts identify as the making of an inexorable recession) carries with it the dangers of a contagion spreading to other developed countries.

Current mood of Indian corporates

A persistent slowdown in Indian industry during the last two years has brought out many maladjustments in the economy of which the primary feature is the pronounced lag in domestic demand in relation to industrial capacities which have been created in the post-liberalisation period.

It is an irony of the situation that captains of industry who campaigned vociferously for the Government to ``get off their backs'', at the beginning of the economic reforms in 1991, are now looking abjectly for some ``breakthrough'' in macro-economic policy which would liberate them from the agony of falling margins and shrinking markets. It is certainly not a toughness of outlook but a rather lingering attitude of dependence on Government as the prime mover of the economy, as in the days of the ``Command and Control'' economy. The recent opinion poll of CEO's, conducted by the Confederation of Indian Industry (CII), although yielding predictably a plurality of perspectives, has brought out an undertone of pessimism which has gripped corporate business.

While the Reserve Bank of India (RBI) believes that a favourable monsoon already is indicative of encouraging growth process (of 5.5-6 per cent in GDP), hardly 4 per cent of the CEO's in the CII sample believe that a turnaround in the economy would happen during the current fiscal year. As many as 49 per cent of the CEO's have indicated their glum outlook for sales and profits (growing at less than 10 per cent during the current fiscal). As many as 55 per cent of the respondents seem to believe that the current slowdown in industry is the beginning of a recession. The fact that these perceptions are a sharp deviation from the record of performance of corporates during 2000-01, notwithstanding the sluggish growth in sales, should not be overlooked. Granted that the IT, pharma and FMCG sectors have made for the difference, it is inappropriate to underestimate the resiliency of the Indian corporates in such areas as cost management, outsourcing and reshuffling of product portfolios. Of course, competition is biting the Indian corporates but the more formidable challenge is the mismatch between supply and demand with the latter trailing behind.

Domestic demand, key factor

The CEO assessment that the main constraint in the economy is domestic demand, is widely shared by economic analysts. But there is a difference in emphasis. While economic analysts, by and large, are inclined to believe that rural demand has played ``spoilsport'' in the economy, during the last two years, owing to the stagnation in agricultural output, Corporate CEO's (in the CII sample) seem to believe that it is the Government's poor performance in implementation of projects in infrastructure, which has worked havoc with domestic demand.

The truth perhaps, is that both consumption demand and investment demand need to be reactivated if the economy is to resume its 7 per cent GDP growth trend. There is evidently no prescription for a ``quick fix'' but what seems to be the missing element in the macro-picture is the crucial coordination required as among the Central Ministries involved in Infrastructure development and even more so, as between the Centre and the State Governments. The question of stimulating rural demand, not so much as an instrumentality for a higher GDP growth rate but as a manifestation of public policy intended to empower the rural community in terms of access to basic amenities of living - drinking water, roads, electricity, schools and medical facilities - has long been articulated but not to much avail. Do Indian corporates look at rural development as a critical path to their own future or as a mere cosmetic addition in the name of a compassionate humanitarian outreach?

Re-discovering keynes

The Indian CEO's have been mentally conditioned, in recent times, by the paradigm that containment of government expenditure is per se a nostrum for economic growth. It is only when domestic demand becomes an inhibiting factor in their own calculations that they begin to think of government spending as a ``pump-priming'' phenomenon. That is Keynes for you, even if the current fashion all over the world, is to put undeserved faith in monetary policy as the cure-all!

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