Why Mukesh Ambani's 'cautious actions' could be a bad sign for the economy

Why is Ambani hitting the brakes on a seven-year, $100 billion investment spree across refining, petrochemicals, telecom and retail?

Does Mukesh Ambani see dark clouds gathering on the horizon? From his message to shareholders, it doesn't look like India's richest tycoon is worried. But his actions may reveal more than his words.

At Monday's annual general meeting, the chairman of Reliance Industries Ltd was brimming with optimism. Not only did he endorse Prime Minister Narendra Modi's vision of bumping up annual GDP by 80% in five years to $5 trillion, he even forecast a $10 trillion Indian economy by 2030. It's not only possible but "inevitable," he said.

Something doesn't add up. If the outlook is so rosy, why is Ambani hitting the brakes on a seven-year, $100 billion investment spree across refining, petrochemicals, telecom and retail? While a breather after such frenzied activity may be understandable, why does he want Reliance to be a zero-net-debt company in 18 months? What will it mean for the more than 100 banks and financial institutions around the world that provide India's largest company and its subsidiaries with billions of dollars – and yen, and rupees – in financing and refinancing? Above all, what will Reliance's deleveraging mean for India?

In retrospect, I tackled the last question prematurely in October 2016 when Reliance was shouldering 13% to 14% of the entire investment by India's top 1,250 listed companies as well as Indian Railways and state-owned electricity boards. My conclusion then was that if Ambani took a yearlong vacation, India’s growth outlook could dim. What I didn't anticipate was that starting a 4G mobile network with lifetime free voice calls and dirt-cheap data was just the beginning rather than the end of Ambani's telecom ambitions. The goal of Reliance Jio was to acquire at least half of India's 1 billion-plus mobile customers, and that required continued spending.

Now that he's reached 340 million subscribers, though, the endgame is probably not more than a few quarters away. And that’s problematic for the economy. The rest of India Inc. is paralyzed by debt and self-doubt; consumers are overstretched; and so is the government. A holiday for Reliance would remove from play the only domestic balance sheet with unspent firepower.

Business Standard