View from Delhi: Indian economy is not as bad as S&P thinks it is

Privatisation may be put on the back burner due to political reasons but there is no dearth of government companies that are being prepared for the chop. One such company making headlines is National Aluminium Company (Nalco), which happens to be the second biggest aluminium company in India, after Hindalco, an Aditya Birla group firm.

As many as eleven companies, most of them foreign, have expressed interest in Nalco, though not all of them may make the final race. The list includes an international who's who of aluminium firms, headed by Alcoa Inc of U.S., Alcan of Canada, Pechiney of France and BHP of Australia.

The Indian players are Hindalco and Sterlite Industries, which last year took a stake in another state-owned aluminium company, Bharat Aluminium (Balco). Aluminium Bahrain has also joined the fray and so has a Chinese company.

The government has decided to offload 29 per cent of Nalco's equity to what is known as a strategic partner who will have management control, and 30 per cent to domestic and foreign investors. The bidders are fighting for the strategic stake. The government will retain 26 per cent and the balance will go to employees.

However, it may not be smooth going. Nalco is located in Orissa, a backward state rich in minerals including bauxite, the main raw material for the white metal. The state chief minister, Navin Patnaik, an ally of the government at the centre, has opposed the move.

So has Uma Bharati, the mining minister at the centre as also local parties including Congress. Incidentally, Nalco's alumina refinery produces the cheapest alumina in the world and would be a gold mine to the lucky new owners.

Meanwhile, within hours of the postponement of privatisation of government oil companies, Bharat Petroleum and Hindustan Petroleum, a U.S. rating agency, Standard & Poor's, has downgraded India's rupee debt to junk status. It has cited the setback in disinvestment programme as the main reason for the downgrade.

The new rating applies to rupee debt only and not to foreign currency credits, but its impact on the markets and foreign investment will certainly be negative. Actually, the economic situation is not all that serious, whatever Standard & Poor's might say.

Foreign reserves have already crossed $60 billion and at the rate they are going up, there is talk that they might touch $100 billion in a couple of years. GDP growth is likely to be 5 per cent despite drought, which would put India among the fastest growing economies in the world.

But it is not all hunky-dory as far as the job market is concerned. A software firm which advertised for about fifty jobs recently got thousands of applications. Small travel and advertising agencies which generally absorb fresh graduates from universities are closing down and so are small factories in Mumbai and Delhi.

The only bright spot in an otherwise clouded scenario is the pharma industry which, after software, is all set up to usher in the next export miracle in India. Pharma exports are growing by 40 to 50 per cent a year, just like software exports a few years ago, with companies like Ranbaxy zeroing in on patent-expired bulk drugs for which there is great demand in export markets.

Ranbaxy is no more the small Delhi-based company it used to be. It has now become a real multinational with factories and marketing setups all over the world and is aiming at a turnover of $1 billion by 2005. For a company that started off with sleeping pills at ten paise each, this is quite a leap.