Tuesday, August 05, 2008

Businessworld - The Price Of Growth

Businessworld - The Price Of Growth: "That may sound preposterous in these nascent years of India’s economic renaissance, but there is evidence to suggest that Tata’s fears aren’t unfounded. The unprecedented growth in the economy has led to a spectacular rise in the costs. Corporate India’s interest expenses have risen 28.74 per cent in the Jan-March 2008 quarter — the fastest in the past 10 quarters, according to the Centre for Monitoring Indian Economy (CMIE) (see graph ‘Rising Costs’ on page 31). The West’s average is 2-7 per cent. Profit after tax as a percentage of income was among the lowest in the past 10 quarters, indicating a squeeze on margins. Salaries and wages have risen 22.44 per cent, the second highest in the past 10 quarters, while power and fuel costs are growing at a fast clip of 14 per cent. “India’s cost-competitiveness has eroded,” says Sanjay Verma, managing director of real estate consulting firm Cushman & Wakefield India. “India will lose out if it doesn’t offer anything other than a cost advantage.”

Citi’s India Equity Strategy report of May 2008 says an analysis of the rising costs of setting up business over the past three years — asset, capital and services based — suggests ‘business inflation’ could be as high as 10-35 per cent a year, well ahead of 7-8 per cent headline inflation. “It has become expensive to live in India but probably even more expensive to do business in India,” says the report.


Post a Comment

<< Home