ANOTHER ECONOMIC DOWNTURN IN THE MAKING

Brace yourselves Ladies and Gentlemen, in all probability; there is a global economic Tsunami in the offing. The dark clouds of the same have been hovering around the sky for some time now, in the form of global inflation, food shortage, stock market slides, northward interest rates and liquidity shortage. The Deficit crisis in US though got resolved for the time being by the Obama administration, had resulted the Standard & Poor downgrading the rating of that country from AAA to AA+ and this had amply augmented the process of Downturn. (It is another matter that the same Standard & Poor applied poor standards in rating the derivatives of the subprime loans). The present precarious economic condition of European nations particularly Greece, Ireland, Portugal, Spain & Italy will make matter worse for the globe. The crude oil price hasn’t fallen yet and the skyrocketing of Bullion rates is another manifestation of the challenges to come about.

Then there are talks about Rupee appreciating against dollar which is bad news for exports. Conversely it could be positive for the country that our oil imports will get the benefit from a weak dollar.

In the last instance of the major global recession that happened only 3 years ago, though India was not impacted at the scale of what happened to China and all, our IT sector and Exports were affected. This time too it could happen to these sectors though there is this comfort factor that western IT companies have sufficient cash surplus to pursue the ITS & ITES services to continue being in India. This is happy news.

What is the situation for India now? We would want the crude oil prices to come down. This alone will control the inflation and bring down the interest rates. Lower interest rates will move up the financial services market, particularly the stock market, giving fillip to retail investors who are really off it now.

When American and European markets are not doing well, the advice given to FIIs was to invest in attractive Asian market. India should await that to happen. But will that ever happen? Please consider the present political situation in the country. Madam is sick and away, the PM is inactive and not really in control, the coalition parties are continuing the loot, perceptions of big and rampant corruption at high places, civil society agitations, states wanting to split etc. are not giving them any confidence to do so. This could be a major worry for all.

News of Global recession brings fear in every body’s mind. Our Finance Minister hasn’t really commented on it. Like everyone, he is also on a wait and watch mode. I hope and pray that as in the past, the recession will not make a major impact on our country. However, my hunch says no. As we are getting more and more integrated into the global economy (do you know that India has invested in Rs.1,83,000 crores in American Debt papers?), the chance of the impact can only go up. Is that not the reason for our FM, RBI Governor etc . keeping mum and watching the developments? So, there is no surety on anything. It comes as it comes. We cannot predict anything in advance.

Is there a reason to panic? Presently, no. Though time hasn’t come for one to go into true austerity measure, it would be a good idea to restrict ostentatious spending. This is time for cautious optimism. The emerging huge Indian market could be a saviour for the Indian trade and commerce. However we need to ensure is that we get into the market with products and services that has global quality and standards. That could be a challenging task for the Indian industry particularly the SME sector. The huge SME sector needs to go thru the transformation process to be the best. It is where systems, process and technology come to help. Organisations that undergo the change in these lines will benefit immensely from the local market. So it is time for Indian industry, particularly the SME to think, plan and act.

Is it a tall order?