Economy in India slowing as companies abandon expansion plans

Bombay News.Net
Friday 21st November, 2008 (Anjana Pasricha, New Delhi)

Many Indian companies are slowing expansion plans as they cope with the global economic downturn.

It is a huge change from last year when Indian companies spent billions of dollars on acquisitions both at home and overseas.

A recent decision by Indian conglomerate Tata to defer expansion plans came as no surprise to industry watchers. The group chairman said recently that some of its companies with foreign operations are facing problems raising capital, and advised managers to put acquisitions on hold.

It was a huge turnaround from the last two years, when the Tata group, like many other Indian companies, was on an aggressive buying spree. Tata's most high-profile acquisitions were its takeover of steel maker Corus last year, and the purchase of Jaguar and Land Rover earlier this year.

Flush with profits from a booming domestic economy, Indian companies spent about $33 billion in 2007 on overseas takeovers. At the same time, they drew up ambitious expansion plans at home to benefit from growing consumer demand.

But most companies are rethinking those plans as a credit squeeze begins to bite.

An economist at the Confederation of Indian Industry, Anjan Roy, says steadily rising interest rates in the last year are hurting industry.

'Across the board companies, all sectors - people are complaining that they are facing this higher interest burden, and in the face of that they are cutting down investment plans. Expansion has been affected because of this credit squeeze,' he said.

The higher interest rates have also cooled domestic demand in the last year. The automobile sector - booming until earlier in the year - is reporting lower car sales. Builders are unable to sell homes, and demand for commodities such as steel has dropped.

The head of the economic think tank, RPG Goenka Foundation in New Delhi, D.H. Pai Panindiker, says many sectors have been affected.

'Automobiles have been cutting production,' he said. 'The other industries which are likely to be in trouble are textiles, for which the demand has come down very sharply, leather goods, chemicals is another industry.'

Indian companies are asking the government to lower taxes, and cut interest rates to revive demand and protect them from the global slowdown.

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