KEY POINTS:
When the going gets tough, the tough get going. Well, it's crunch time and we finally get to find out whether India's newly muscular economy is really tough and ready to keep going.
Hard times could be coming faster than anyone anticipated. The first warning signals came last week when Wockhardt Hospitals, a highly successful medical company, found there were no takers for its US$165 million ($209.2 million) IPO. Ultimately only a tiny fraction of the company's IPO was subscribed.
Next it was the turn of Emaar MGF, which was looking at raising US$1.6 billion and which has spectacularly ambitious plans for India. Dubai-based Emaar, the world's largest private real estate developer, figured that the hungry Indian market would gobble up its giant IPO.
Unfortunately, it made its debut after the market had caught the bad infection that's going around the globe. About 85 per cent of Emaar's issue did find buyers but the company reckoned it was better to call it off with the stock market having fallen 18 per cent since the start of the year.
"The company decided to take this step as a result of the prevailing adverse market sentiments, fuelled by renewed indications of a US recession and global meltdown," said the company.
The Wockhardt and Emaar IPOs were a graphic illustration of how investor mood can go from optimistic to pessimistic in the twinkling of an eye. Barely two weeks earlier on January 16 another company, Reliance Power, led by billionaire Anil Ambani, launched its US$2.9 billion IPO which was oversubscribed a whopping 73 times.
Scores of hopeful companies are watching nervously from the sidelines at the Wockhardt and Emaar debacles. A deluge of IPOs worth about US$15 billion had been scheduled to hit the market this year - that's up from a record breaking US$8.3 billion in 2007.
The money would have been the fuel for a huge burst of growth. Take the power sector, for instance, where companies had hoped to raise about US$10 billion. Power shortages are getting worse all the time and the Government's far behind all its targets on adding new capacity.
On the plus side, the Central Statistical Organisation, which tots up the country's growth figures, had everyone cheering when it announced it had revised its growth estimates for the past financial year to 9.6 per cent from 9.4 per cent.
But as they looked into the future, the figures looked gloomier. The agency reckoned that the economy would slow to 8.7 per cent in the current year. "Much growth came because risk capital was available from the US. A liquidity crunch always gives rise to risk aversion," says Amitabh Chakraborty, president, equities, Religare Securities.
While the Indian economy is more insulated than other parts of Asia from a global slowdown because it's not heavily dependent on exports, the downturn is starting to take a toll.
Some economists project growth as low as 7 per cent next year - good by anaemic Western standards but bad for India which needs double-digit expansion to lift hundreds of millions from deep poverty.
Indians are now facing the cruel reality that the Congress-led Government that has ruled since 2004 - a period that coincided with rapid growth - hasn't actually done that much to boost the economy. Embroiled in its own battles, it's let the economy barrel along on its own.
As the economy loses steam, can the Government, led by Prime Minister Manmohan Singh, an ace economist in an earlier incarnation as finance minister, rise to the occasion to keep the economy rolling along?
That, unfortunately, seems unlikely. The minority Government is an uneasy marriage of 13 parties thrown together by force of circumstance and an ambition to stay in power as long as possible. It's hopelessly weak and it's tough to get the coalition partners to support bold moves that might drive the economy forward. In fact, most of the coalition partners are running their own ministries like private fiefdoms and ignoring the PM's commands.
Take the Dravida Munnetra Kazhazam (DMK), a regional party that rules in Tamil Nadu, south India. It's one of the biggest coalition partners and its ministers control key ministries like telecommunications and roads. The telecom minister has, in recent months, been accused of favouritism by giving out fresh licences to mobile phone providers.
The result is that there'll be 12-13 operators in each circle compared to about six currently - the newcomers include property dealers and television makers. Some older players are also crying foul because they have been denied fresh spectrum to expand their services. The Prime Minister's efforts to intervene to bring some stability to the sector have been firmly rebuffed by the DMK.
Then there are the Communists who have 60 seats and who prop up the Government, though they aren't a part of it. The Communists have stopped the Government from opening up the insurance sector and have frequently weighed in against economic reform. In the last few months they've threatened to bring down the Government over its efforts to negotiate a civilian nuclear technology deal with the Americans.
What could the Government do to ensure that India's growth stays on track? For starters it could speed up the road building programme which has been slowing ever since it came to power. If the Government could get a dozen mega-infrastructure projects going, there's a good chance it would offset the effect of the global slowdown.
