The problem is shortage of capital investments as well as the inefficient use of funds. Tight monetary policy in 1996 led to a cyclical downturn. In the course of the year, industrial production growth slowed. Though Indian banks have been trying hard to improve the quality of earnings, they are still writing off bad loans made in the 1980s. Having said that, India is the one economy in Asia that is improving the most on a short-term horizon.
Inflation is also in check.
In the fiscal year that ended in March, we see overall earnings growth close to zero. The lag effect of high interest rates and the unwillingness of banks to lend money means that pick-up is unlikely until the third quarter of this year. Share settlements have long been a problem in India. We keep a portion of the portfolio in GDRs for the liquidity. But the aim is not to have too many GDRs because the premiums on those are high.