Inflation to hit Indian Inc's growth plans - report

The 13-year-record inflation figures were announced on a day when Hindalco Industries announced its plan to retire loans taken to finance the Novelis acquisition. The Aditya Birla flagship company, which has about $3.03 billion as debt because of a bridge loan taken to fund the acquisition, will be tapping the market soon to meet the bridge payout.

“As long as we can pass on the cost to the market, it is ok,” managing director Debu Bhattacharya told reporters on Friday. “If we can’t, then it will be bad.” Inflation rate surged to a 13-year-high due to high crude and commodity prices, putting a question mark on growth estimates and on the ability of the Indian market to absorb any further increase in input costs.

“It’s (inflation) very unfortunate and certainly a thing that we can do without,” said Tata Sons’ finance director Ishaat Hussain. “But it has been driven by high oil and commodity prices, largely on account of external factors. It will require measures which will impact growth. Borrowing will become costlier and growth momentum will be affected.”

Indian companies, large and small, have drawn up large plans to expand capacities. Since borrowing will become costlier, the future of such expansion plans looks uncertain. However, the infrastructure sector may not be affected as deferring such projects would be even costlier.
India is scheduled to spend $500 billion to develop various infrastructure projects. B Hariharan, group finance director of the Gautam Thapar-controlled Ballarpur Industries, says “The high inflation will slow down the manufacturing sector. Although expansion projects will be affected, those that will be funded by domestic debt will be hard hit, while companies depending on foreign loans may be relatively better off,” he added.

On Thursday, KPMG said India would likely see the largest global investment in the manufacturing sector, with about 25% of large global corporates expected to invest in the country. Investment in other sectors such as in industrial products, will also be large, with India likely to displace the US to gain the second rank after China, said the report, which was based on a survey of 300 corporate investment strategists from 15 economies