Industries Slash Production and Defer Projects as India Combats Economic Recession

PTC India Limited (New Delhi) reports that the worldwide economic crisis might delay projects for which the firm has entered into power-purchase agreements. The firm also clarified that in-house projects are not affected by the global financial crisis and the ensuing credit crunch, according to Industrial Info Resources (Sugar Land, TX). The firm is unable to secure financial closure for its projects and plans to raise funds after 2010 to meet its capital expenditure requirements.

PTC's predicament reflects the present market sentiments in India where projects worth more than $17.5 billion have been shelved in the first half of the current fiscal year, April 2008 to September 2008. This figure is reported to be 148 percent higher than the total cost of projects shelved during the same period last year. Data from the Center for Monitoring the Indian Economy corroborates the above finding as the total cost of projects under investment in several industries stood at $675 billion for the quarter ending September 2008, about 31.8 percent lower than that seen for the same period last year. Overseas investors sold Indian stocks worth $13 billion this year in a reverse trend, in contrast to that seen in 2007 when oversees investors purchased a record $17.2 billion worth of stocks. The growth of the Indian economy is expected to be 7.5 percent in the current fiscal year ending March 31, 2009, as opposed to the annual growth of 9 percent or more that was registered in the last three years.

Companies in the automobile, real estate, steel and textile industries have deferred projects and trimmed outputs in response to slackening demand in the domestic market. Sales of commercial vehicles in the country plunged by 36 percent in October. Tata Motors Limited (Mumbai) shut a manufacturing plant in Jamshedpur, Jharkhand, from October 6 to October 8 and a factory in Lucknow, Uttar Pradesh, from November 10 to November 15. It also plans to halt the production of commercial vehicles at its factory in Pune, Maharashtra, between November 21 and November 26. Ashok Leyland Limited (Chennai, Tamil Nadu) plans to operate its plants on a work schedule of three days per week for a period of two months because of decline in demand.

Ispat Industries Limited (Kolkata, West Bengal), which is directly affected by the decision of major automobile manufacturers to trim production, plans to slash its steel production by as much as 40 percent. ArcelorMittal (NYSE:MT) (Luxembourg, Luxembourg), which had plans to invest $16 billion and set up two greenfield steel projects with a capacity of 12 million tons per year each in Jharkhand and Orissa, is likely to defer the proposed projects. DLF Limited (Gurgaon, Haryana), India's largest real estate developer, has also shelved projects and is contemplating layoffs. Reliance Petrochemicals Limited (Jamnagar, Gujarat) shut down plastic raw material units in Patalganga, Maharashtra, in response to declining demand and plummeting prices. The domestic textile industry eliminated 700,000 jobs in the last six months.

At a press conference in New Delhi on November 18, India's Finance Minister P. Chidambaram announced that the government plans to adopt fiscal measures specific to each industrial sector to counter the impact of the worldwide economic recession. India is resorting to various measures such as lowering interest rates, relaxing rules on oversees borrowing, and allowing higher foreign ownership of domestic insurers to alleviate the credit crunch and boost confidence.