India Inc. cautious, corporates expect full blown economic crisis in 2012

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Cash will be king for India Inc in 2012, which believes that the current global meltdown might snowball into a full blown crisis and last at least till the end of 2012.

A small percentage feel the crisis could last till 2014.

Fifty per cent of the respondents felt that the liquidity situation was not as bad as in 2008, but a sizeable 45 per cent felt that the situation is worse than in 2008.

In this scenario 50 per cent of the respondents of which 82 per cent were large corporates interviewed for a survey by industry body Ficci said they would be holding on to their cash for at least six months.

This implies 'holding on to their investment plans for better future opportunities'. This trend according to Ficci is akin to FY2003, when also the economic outlook was uncertain in the aftermath of the 2000 dotcom bust and 26/11 WTC attack.

The survey was conducted between September-October 2011. It was taken in the background of the dismal financial and economic situation globally and the slowdown in the Indian economy and reflects the fears and uncertainty in the approach of India Inc to future investment which is the key to growth.

In this scenario, 50 per cent of the respondents said they would be using incremental funds purely for working capital purposes.

On an average, the increase in funds for working capital needs has been 25 per cent.

"If we strip this 25 per cent off from non-food credit growth for the current fiscal, there has been actually a decline in non-food credit growth purely for non working capital needs," says Ficci.

However, if the survey is to be believed the respondents don’t seem to have a plan B to find alternatives to working around this situation and expect the government to get its act together.

Asked to indicate what measures they are taking to deal with the problem of slowdown, they only made suggestions that included demanding increased government spending to boost the non-food credit growth; an end to the monetary tightening and better infrastructure facilities at the ports, especially Chennai and Kochi.

The corporates interviewed for this survey represented industries across the board.