Report of the Directors & Management Discussion and Analysis
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Report of the Directors & Management Discussion and Analysis For the Financial Year Ended 31st March, 2009 Your Directors submit their Report for the financial year The two aggregate demand growth drivers, namely ended 31st March, 2009. investment and private consumption have moderated in India. The sectoral growth drivers, i.e. manufacturing, SOCIO-ECONOMIC ENVIRONMENT agriculture, construction and communication have all Fiscal 2008-09 commenced with the Indian economy experienced reduced growth rates. The Indian equity and foreign exchange markets were adversely impacted sliding into a cyclical slowdown after a five year record in the wake of withdrawal by the Foreign Institutional of extraordinary growth. High oil prices and rising domestic Investors (FIIs), triggered by their need for liquidity inflation were a source of concern, as was the possibility support in other markets. The money, debt and credit of a worsening of the American financial crisis which markets too were impacted. Thus, while the Indian had surfaced in 2007. The financial crisis exploded post banking sector remained largely unscathed by the global September 2008 into a global phenomenon. Spreading financial crisis, it could not escape a liquidity crisis, in quickly across Europe and Japan, it has already pushed turn impacting investment and consumption in the real most developed economies into a prolonged recession economy. The government had no option but to introduce that could extend well beyond 2009. The failure of some stimulus packages estimated at 2.9% of the GDP. of the biggest and most well-known financial institutions Combined with the loan waivers and the hikes granted has led to risk aversion on a global scale, eroding by the Sixth Pay Commission, the pump priming of the confidence in financial markets and systems. Thanks to economy has worsened the fiscal deficit. The Reserve the concerted and timely response of governments Bank of India on its part attempted to inject liquidity across the world, a total meltdown of the global economy through a series of policy interventions. Unfortunately, was avoided. There is still uncertainty on whether the despite enhanced liquidity, credit flow to kick-start the recession has hit the bottom. Historic analysis seems economy remains inadequate since the banking system to suggest that financial crises tend to be prolonged, continues to be risk averse in this weak economic especially if they are a result of asset market collapse. environment. The RBI seems to be determined to not In India, the cyclical downturn was aggravated by huge allow the increasing levels of Government borrowing to inflationary pressures in the economy in the first half diminish the availability of credit for the private sector. of FY 2008-09. By the middle of the second Quarter of Simultaneously, it is persuading the banking sector to the year, inflation had reached an alarming level of pay heed to policy signals and reduce their lending rates 13%. While inflation in developed markets had also to stimulate investments. risen, the problem was particularly acute in emerging The latest World Economic Outlook brought out by the markets where food articles, which constitute a much IMF expects global output to register a degrowth of larger portion of consumer price indices, had suffered 1.3% in 2009, its first fall in 60 years. Real GDP growth a sharper rise in inflation. In the last Quarter of the in advanced economies is likely to be a negative 4%. financial year, inflation began to dissipate. A sharp In emerging and developing economies, growth is likely decline was witnessed in the prices of commodities, to be sluggish at 1.6%, down from the 7-8% witnessed including crude which dropped to a four year low of from 2004 onwards. World trade is expected to shrink sub US $ 50 per barrel. by as much as 11%. Even though Governments across With a fairly young population, skilled manpower, rising savings and investment rates, a vibrant service sector, a potentially large source of domestic demand and the emergence of globally competitive firms, India has multiple growth drivers which hold out the promise of stable and sustained future growth. 34 ITC Report and Accounts 2009 Report of the Directors the world have pumped in billions of dollars of liquidity now has the mandate and the opportunity to boldly move to ease credit flow and have undertaken tax cuts to forward with its reforms agenda, creating in the process, stimulate demand, it is too early to predict the eventual an enabling climate for a faster and wider economic outcome conclusively. India is bracketed with China and recovery. other emerging countries that are less likely to enter The challenge for India is to sustain high growth rates contraction on account of their large domestic economies, even while addressing the problems of inequitable income which continue to show buoyancy. distribution and over exploitation of environmental India is expected to clock a GDP growth of 6% in resources. It is here that unique business models like FY 2009-10. Against the backdrop of an improving macro the ones forged by your Company can supplement the environment, a ‘green shoots’ theory is emerging. While efforts of the government in creating societal value and there are fragile signs of a pick-up, it is still too early to enhancing societal capital. It is an essential pre-requisite call it a recovery. Incremental data in India is veering of rural development that markets are co-created with towards the positive (cement shipments, port traffic, local communities and in a constructive public-private- telecom subscribers, auto and retail sales, etc.). However, people partnership. Your Company’s e-Choupal network that is not the full story. Real estate and exports still is a close replica of this model. It provides the farming remain deep in the red, adversely impacting employment. community with value added services such as crop One of the key obstacles in the way of export recovery advisories, advance weather forecasts, output price will be the recent tendency on the part of mature discovery, direct communication tools and distribution economies to resort to protectionism. While the members of un-adulterated agri inputs. The footprint of this network of the G-20 have pledged to work against protectionism, is well established to source all requirements of your it remains to be seen whether they can deliver their Company’s Branded Packaged Foods business and is promise in the face of political and social pressures in poised to grow in line with entry into newer categories. their home territories. Similarly, your Company’s unique and path-breaking Relative to other emerging economies, the inherent ‘Choupal Pradarshan Khet’ (CPK) initiative, a paid strengths of India will help it better withstand the adverse extension service aimed towards enhancing farm effects of the global financial crisis and the aftermath of productivity with emphasis on adoption of agricultural the downturn in developed countries. With a fairly young best practices, continues to attract the interest of both population, skilled manpower, a tradition of saving farmers and partnering companies. The demonstration reflected in the rising savings and investment rates, a plots under CPK provide additional yield of 28% on an vibrant service sector, a potentially large source of average as compared to control plots. This network is domestic demand (particularly rural) and the emergence focused on building competencies at the farm gate level, of globally competitive firms, India has multiple growth which will go a long way in enhancing the competitiveness drivers which hold out the promise of stable and sustained of India’s agricultural sector and agri-based industry. future growth. These strengths will get further augmented Notwithstanding the present global crisis, India’s growing by the planned investments in infrastructure development economic clout is leading to a more pro-active and envisaged in the Eleventh Five Year Plan. meaningful global engagement, particularly in areas like The impressive performance of the UPA in the recently global warming and climate change. It is today widely concluded election augurs well for the country. It holds acknowledged that future economic growth will be more the promise of a stable government, continuity of policies sustainable only if national and corporate strategies and a rapid pace of reforms. Unfettered by the embrace the need to enhance environmental and social compulsions of coalition politics, the Congress party capital. In line with this philosophy, your Company is It is an essential pre-requisite of rural development that markets are co-created with local communities and in a constructive public-private-people partnership. Your Company’s e-Choupal network is a close replica of this model. ITC Report and Accounts 2009 35 Report of the Directors pro-actively engaged in enlarging its contribution across In order to strike a balance between the need to sustain the three dimensions of the ‘Triple Bottom Line’ – economic, strategic investments for a secure future and the annual environmental and social – through a conscious strategy expectation of shareholders for growing income, your of investment and operations that enhances the Directors are pleased to recommend a dividend of competitiveness of the value chains we are engaged in Rs.3.70 per share (previous year Rs.3.50 per share) for to fulfill the consumer and societal demands of tomorrow. the year ended 31st March, 2009. The cash outflow in this regard will be Rs.1633.87 crores (previous year Highlights of your Company’s progress in the pursuit of Rs.1543.18 crores) including Dividend Distribution Tax the ‘Triple Bottom Line’ objectives are discussed in the of Rs.237.34 crores (previous year Rs.224.17 crores). sections that follow. Your Board further recommends a transfer to General COMPANY PERFORMANCE Reserve of Rs.1500 crores (previous year Rs.1500 crores).