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Looking up –Indian economy
by Lalit Sethi
Of course there are reasons to be anxious about the
future. The fear of the cool down in the American economy catching up
the Indian economy is there and so is the ever rising Sensex as the
danger of a crash is always at the back of the mind. Add to it the
possibility of the mid-term polls and there is cause for concern.
However, the industry is optimistic and therefore looking forward to
future planning.
Is the Indian economy getting overheated with massive inflow of dollars
for foreign investment and Indians themselves putting their own money
into stock markets in a big way? Is the continuing appreciation of the
rupee value and drop in the American dollar price a good thing or bad?
The Reserve Bank of India is no longer able to buy up the dollars
flooding the market: pumping too many rupees into the market would
defeat its objective of curbing inflation. In fact, the slide in
American interest rate by half a per cent has diverted dollars to India
for promised and possible high returns.
In this scenario, the stock markets have been witnessing a high rise
trend, as never before. The Bombay Sensex is over 17,000 mark and the
Nifty near 5000, both these highs for the first time. This despite the
crude price fluctuating between $80 and 82 per barrel, the highest price
in history. Even the American economy has definitely slowed down, with
the growth rate dropping from 2 per cent a year to one per cent a year.
That is not recession, nor depression, but fears of recession live in
people's hearts as Americans are not buying as many cars as they
normally do. There have been job losses. The housing construction has
come down to 1.4 million units a year from 6.25 million units a year and
values have dropped from 20 to 30 per cent, but in India the housing
boom continues. Perhaps, the reason for this is that the size of the
Indian economy is eight per cent of the US economy: $1 trillion against
$12.5 trillion. So the cushion of impact is considerable. America is
truly far away for the time being, but trends do not take long to
travel. That is why Indians keep their fingers crossed.
The Reserve Bank is usually expected to cut its own prime lending rate
by half a per cent, but it is cautious lest it has an inflationary
impact, but the borrowers, used in old days to paying high interest, are
not deterred by 10 to 12 per cent charged by banks. But the RBI may
still cut the interest by 0.5 or 0.25 basic points to help push up
industrial production and manufacturing, which dropped in July this year
compared to the same month last year: the growth of 7.5 per cent against
9.3 per cent in 2006. The overall growth for the year is still expected
to be 8 or 8.5 per cent in the full year. The Government would be happy
with this cooling trend as it would have contained wholesale price index
even if the consumer or the man in the street continues to be taken for
a ride with high retail prices.
There is no doubt that all the trends are confusing, positive matched by
negative the new style and modern banks are still eager to hook credit
card holders with unsecured loans of lakhs of rupees at 15 to 18 per
cent to make a fast buck and if there is a lapse in repayment, they send
goons to harass the borrowers whom they wooed and promised the moon in
the first place. They are also continuing to lend money for motorbikes,
cars and housing and ready to repossess all of these if there is a
default, legally or illegally.
The banks are taken to courts, especially consumer courts, but they take
their own time to obey or disobey court orders. They have a battery of
lawyers to use the appeal route to defy one court by going to a higher
one, or just ignore. The courts can issue orders, but have little or no
mechanism to enforce their diktats. The consumer is left in the lurch,
high and dry. So one has no option but to avoid being lured by bankers,
who use franchise call centers to trap the clients. Yet all these
negative trends appear to be in the process of being cancelled out by
the euphoria over cricket, other sports and upper middle class enjoying
happy hours at eating and drinking joints and partying like never before
as if there is no tomorrow. The voice of the poor, the very poor whose
count is 400 million in a billion plus population is naturally drowned.
Farmer suicides and suicides by their relatives and families continue,
but that appears to be an old story. If the media focuses on them, it is
just another tragedy, a bad dream for the affluent, to feel sorry, do
some good deeds, charity and feel good again.
The political parties, especially the Communists, have no time for them
as their constituency is the working class in towns and cities and they
do not win their votes in the villages, except in pockets of Kerala and
Bengal, but they definitely show their muscle, if not the clenched fist,
to the Government and the rulers of the day. They call the shots and
threaten to bring the United Progressive Alliance down if the alliance
does not obey their one point agenda of the moment: hold up the 123
nuclear peace agreements for six months so that it will die a natural
death. The Government insists it will go ahead with the negotiations
with the world community and threatens its detractors that it is ready
to pay the price of being thrown out, but it is not brave to buckle
down. It points out that it has got a better deal than China and Japan
had and India stands to benefit greatly by getting new nuclear
technologies and double use technologies in several areas.
In India, there may be a near complete political flux, with the
political parties getting ready for the dissolution of Parliament early
next year and a General Election looming over the horizon. Yet they hope
that the leftists will step back from the brink as in the hearts of
their hearts they do not want an election before the summer or spring of
2009 and not next year. The monsoon continues its fury, now in Kolkata.
Parts of South India
have just overcome tsunami fears after a big earthquake in Sumatra, but
Bihar still has 20 million hit by floods, which may be receding, but the
people are counting their miseries and looking for food and shelter. The
positive indicators of human endeavor and achievements of scientists,
students, business houses, new discoveries and what have you even help
the policy makers not to worry too much about the drop in exports
because the rupee is priced high and Indian goods are costly and cheaper
alternatives in South East, Bangladesh, Pakistan, Sri Lanka and
elsewhere are available. In fact, Indian companies are tapping these
countries by setting up manufacturing and information technology centers
there to find cheaper labour and lower costs, even to overcome future or
present shortages of skilled workforce and diversify.
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