ADB and S&P Stretches Govt on Either Side on Economic Recovery of India

Manmonhan Singh team which has been facing unrelenting question about country’s financial health received a shot in arm from one of the major financial institutions, ADB, about country financial condition. ADB described India’s economy as one with resilience amid global economic downturn. This will help government to ward-off questions relating to economy which government is finding hard to explain.

On the other hand, leading financial rating firm S&P has concluded that Indian economy will grow somewhere between 5.8% and 6.3% in 2009. This is much below the continuous claims of 7% growth by the government. S&P also forecasted that India will be on path of recovery by September this year, if economic scenario doesn’t deteriorate further. This is beyond the expectation and mark set by the government which wanted to reap the benefit of economic recovery during parliamentary polls this year.

Government is facing increasing number of questions for its economic mismanagement. Though, it expects last year’s farm wavier and pay-commission hike, which was not accounted in budget, to go down well with voters. But, opposition is already making case for financial negligence and with economic recovery would not happen as timed by the government; it would be tough for government to use this bait for voters.

Easy Cash Turns Killers for Indian Retail

The retail boom has come to grinding halt in India. Just a few months back Reliance had announced restructuring of its retail business. Then Subhiksha problem appeared, it was unable to finance its operations. Now, Vishal retail has run into trouble. The company is also facing liquidity crunch and is shutting down a large number of shops and cutting its employee numbers to stay afloat.

Easy money had made it possible for Indian retail companies to go for expansion mode straight from incubation. This had become corporate philosophy for expansion programs of major retailing companies. Every company in hurried desire to gain the first mover advantage had indulged in aggressive expansion on borrowed money. Once the liquidity problem stated becoming apparent in Indian market, these companies started facing cash trouble to run their operations. Easy availability of cash had led to more companies becoming overtly dependent on borrowed money to run their operations.

Subhiskha, like other retail companies over-ambitiously expanded everywhere leaving the company totally starved for cash. They didn’t bother either about its cash flows or cash reserves. This left company bewildered about its future and how to manage the current operations. Vishal Retail another darling of markets, followed similar path of growth and couldn’t see the situation getting out of hands.

Easy availability of cash in the market made retail companies short sighted with assumptions that markets would continue to grown and cash would remain available. This hypothetical assumption got translated into the business model, for which companies are paying today.

Will Political Connection Save Satyam & Mr Raju?

SC has finally directed Andhra police to allow SEBI to question Ramlinga Raju. Andhra Police has been scuttling SEBI move to question Mr Raju for almost a month. Mr Raju’s deep connection with both the ruling class and opposition has given him enough time to avoid him falling into the hands of SEBI. Political clout has ensured Mr Raju a breather time, also he is under arrest on complaint filed by a shareholder. Mr Raju has been using this case to avoid falling into hands of central agencies. Andhra Police had raided and seized documents from Satyam’s office. No one really knows what is going to happen to the documents seized. Though, it would be really difficult for Rajus to destroy evidence of money siphoning between Satyam and other Raju owned firms.

Involvement of several Central agencies and state police has further complicated the issue. Several agencies, independent authorities and government ministries are looking into the case, which requires sharing of evidences. India is classic case of right hand not knowing left hand. Considering the fact that Mr Raju would use his political connections to prevent such evidences getting shared by different agencies, chances are there that some cases against him will be weaken in the court of law, the best place for our politicians and Mr Raju himself to absolve himself of some crimes. But, what is yet to be seen as how Mr Raju would evade the US watchdog – SEC.