Indian Security Feels Impact of U.S. Financial Crisis

The subprime crisis and the resultant economic slowdown in the United States have gradually cast a shadow on the Indian electronic security industry. A growth consulting company provides its viewpoint.

The U.S. economic slump and escalating interest rates and energy prices have impacted certain sectors of the Indian economy at this point in time. High energy prices and interest rates, for instance, have driven up costs in the construction sector, pushing real-estate prices upward. At the same time, high financing costs have deterred prospective buyers from investing under such conditions.

Sectors such as real estate, IT-ITeS (IT-enabled service), hospitality as well as cement, metal and other industries are reportedly experiencing a slowdown. At 22-percent growth in the first quarter of fiscal year 2009 (Q1 FY09; started in Apr. 2008), IT-ITeS sectorˇs growth already fell short by 6 percent when compared to the same period in FY08. As opposed to an aggregate growth of 40 percent in Q4 FY08, the metal and cement sectors registered just 19-percent growth in Q1 FY09. Similarly, the hospitality sector stands at 17-percent growth in Q1 FY09 when compared to 30 percent in Q4 FY08.

While the debate on the extent of the impact of these factors on the Indian economy is still on, there is no doubt that the global downturn, relatively high inflation and political upheaval do not bode well for the Indian economy. The Indian electronic security business depends heavily on the performance of these sectors and investments therein. Electronic security and such investments are not on the priority list for many end users as they continue to slash budgets and expenditures. Currently, the focus seems to be on increasing revenues and reducing costs.

Market players in electronic security have confirmed a sluggish demand, a drop in sales and delays in execution of existing projects. Moreover, they admitted that there is a substantial delay in payments from customers, signaling cash flows problems that may affect profitability of projects.

Suppliers focusing on the IT-ITeS, commercial and premium residential markets have also reported muted Q1 growth and are talking about a similarly poor performance in Q2 FY09. Postponed investment decisions will have a strong negative impact in the remaining part of this year. Players who have witnessed good growth are reviewing their marketing strategies, and a large section of the industry seems to be focusing on government and industrial projects.

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