The global crisis has many lessons for India. On one hand last year'sgloom in USA and Europe is dampening our sentiments, on the other hand 2009 can be a year of opportunities for India. Though political stability after the general elections in near future will be a major determining factor.
In the world scenario, the guiding principal of free market economy has lost its charm; people are talking of end of capitalism as a vehicle of economic development. People want the bailout packages by the government; they want the government to use the taxpayer'smoney to cover up losses of private companies. Many institutions and banks, considered to be the backbone of the financial market, declared bankruptcy and were looking for immediate liquidity. The whole world lost trillions of dollars in capital. Earlier communism failed because people lost faith in the system. Now people have become cynical about capitalism. They have lost faith in banks, stock markets and debts; their confidence has been completely shaken.
There are few lessons to be learnt: uncontrollable greed, over leveraging and debt is not good for the economy; putting profit as a motivator over and above people is not a good idea; and living on credit is simply bad lifestyle. The world needs to look beyond the western powers setting the global economic agenda.
In this situation, If India can stabilise itself in 2009, it will emerge stronger in 2010. Last year, the focus of the global economy shifted eastwards and Asia emerged as an engine of growth. India has now the potential to be an engine of future growth. The fundamentals of our economy are stronger than is often recognised. India'sgrowth has been based on a sustained rise in the capital formation and gross savings rate as a percentage of GDP. In comparison to this Western economic development was based on consumerism.
We don'tneed to focus too much on stock market, which had become too dependent on external factors. The focus of our attention must shift to the real economy. India needs growth in its core sectors, especially manufacturing, construction and agriculture. The slowdown in the export-based sectors and services will have to be balanced. This has been clearly brought out by National Manufacturing Competitiveness Commission. 2009 has to be the year of manufacturing revival in India. We expect the inflation rate to stabilise around 8.0 per cent and GDP to grow between 7 to 8 per cent. This is reasonably good and will bring the desired results.
India'sstrategy will of course have to be based on the assumption that the western countries are not likely to be growth propellant for us. We have to depend on domestic demand, which will sustain our growth. India will be under pressure to liberalise on regional and international scene. US and other countries are asking the developing countries not to put up trade barrier and impose custom duties, but they themselves are resorting to all kinds of subsidies. Shri Barak Obama has asked for labour-wage standards to be part of international trade, wherein those countries, which have low wages, will have to bear with import duties in US. Similarly Indonesia has put import restrictions on 500 items. Russia has put duties on several food items; France is subsidising domestic manufacturing industries. Argentina and Brazil are imposing import duties on food and clothing. World is preaching liberalisation, but acting differently. India also needs to watch out for its own interest. We need to preserve our domestic market at all costs, and take measures to boost our economy.
Keeping this in mind government has come out with two packages to stimulate our economic development. In less than a month since the government announced a Rs 32,000 crore booster dose for the slowing economy, it came out with a more comprehensive and detailed stimulus package valued at over Rs 200000 crore. This second package focuses specifically on stressed sectors such as commercial vehicles, non-banking finance companies, real estate, infrastructure and small and medium businesses. The Centre has also provided states the leeway to borrow another Rs 30,000 crore. RBI, in a coordinated move with the central government has also ensured that the interest rates on home, auto and personal loans decline further. Since mid September 2008, the RBI has reduced repo rate (the rate at which RBI lends to other banks) by 350 basis points from 9 to 5.5 per cent, reduced the reverse repo rate (the rate at which RBI borrows from banks) by 200 bps from 6 to 4 per cent and CRR (the portion of deposit banks have to keep with RBI) by 400 bps from 9 to 5 per cent. The cumulative amount of liquidity made available to finance system through these measures is over Rs 3,00,000 crore. In future, to ensure this outcome India will have to further continue to invest in education, skill building, rural development and agriculture and in making the infrastructure and manufacturing sectors globally competitive.
One important point to keep in mind is that, last year the oil prices were directing and leading the Economic activities. This year the focus will shift to gold. To be on the safe side and reduce risk, the investors should concentrate on wealth management and distribution of their surplus wealth in different asset class and not to keep all their eggs in one basket.
(The writer can be contacted at [email protected])