For Rohan Sharma, business has never been better. Sales at his autoparts company in Gujarat are booming and the order book has almost doubled in the past year.
His Bhagirath Coach & Metal Fabricators has just invested nearly $120,000 in new machinery and plans to spend up to $1.2 million this year to expand capacity.
That’s an encouraging sign for Asia’s third-largest economy, where stressed balance sheets at big firms and heavy reliance on bank credit, which has dried up following a surge in troubled loans, have stymied efforts to revive private investment.
Sharma does not face such constraints. He says his firm is debt-free and relies mainly on internal resources to fund capacity expansion.
A survey from the Reserve Bank of India shows he is not alone. The annual study of nearly 240,000 unlisted small- and medium-sized enterprises (SMEs) found they are saving their way to growth, helping transform India into the world’s fastest-growing large economy in the past two years.
India has more than 45 million SMEs, accounting for nearly 40 percent of gross domestic product. Most are unlisted, and their earnings growth has outpaced listed companies for the past three years.
“We never allowed exuberance to get the better of hard business logic,” Sharma said.
Sales at smaller private firms grew 12 percent in 2014/15, the central bank survey showed. Sales at listed big companies rose 1.4 percent over the same period.
Operating profit of the unlisted firms grew an annual 16.6 percent in the year, three times the pace at listed companies, and they increased their gross savings.
While higher expenses halved net profit growth at private firms, they still grew at double-digit pace. In contrast, listed companies struggled with shrinking profits.
Debt-laden big listed firms, meanwhile, are still reluctant to undertake new investments, and foreign firms can find India’s labyrinthine regulations overwhelming.
Also, infrastructure and resources needed for complex manufacturing, like roads, skilled labour and consistent power supply, is often lacking.
That led to a contraction in capital spending in the January-March quarter. Despite that, strong consumer spending helped power economic growth of 7.9 percent, the fastest rate among the world’s major economies.
Source: For India’s surging economy, small is beautiful | Reuters
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