September 2008, the year that was, caused a wave of financial melt down all over the world. The “TSUNAMI” of the financial sector, swept all the economies in its purview and very less were unaffected by it. Most of advanced world started looking inwards and there was discussion again whether to succumb to be slightly socialist in outlook. India was not a stranger to this deluge and was also destroyed by it. But looking at what is left over of this destruction; one notices that impact was not much. The growth of GDP has only slowed down to 6.7%. The growth has not stalled. India was insulated from this economic melt down (“slow down”) and is on its path unabated.
Sometimes our weaknesses turn out to be our strengths. Sometimes, the very characteristic being ridiculed becomes the beckoning light. Economies all over the world have resorted to various restructuring policies that will help themselves out of this mess. India also had numerous policies to beat this downturn. One dimension that has helped us out of this is our own population. In any economy, the most important agents of sustenance are two: the government and the banks. This is because these are the only two kinds that infuse money into what is called as the market. Market is nothing but people transferring money to each other in exchange of objects or money again. The money induced by the government is direct and indirect. It is direct in the form of salaries, loans and grants. This money issued by the government is more or less continuous, stable and no so volatile. The banks on the other hand are different. The money emanating from the banks, as soon as reaches the market rises exponentially; the velocity of money is very high and is equally volatile. That’s why if the banks are in trouble then we are in trouble. All this money infused by the banks and the government reaches the citizenry and they start spending and thus the cycle of money starts. This is where the population has played a major role. The largest chunk of India’s population is the middle class. The middle class are the largest consumers in any economy. They are the real spenders thus, it is highly important that their purchasing power has to be kept more or less stable. By pushing more and more liquidity into the market, our leaders were keeping this purchasing power consistent. In the words of D Subba Rao (Governor or RBI) “Whereas the advanced economies are shifting their focus from financial sector to real sector, the developing economies are moving from the real sector to financial sector, to beat the recession”. The real sector is the manufacturing sector. By spending more and more the Indian consumers are keeping the economy on its path. There are indeed some pitfalls, like high inflation and feeble monsoon, but the steps have not faltered. The money cycle in India, did not come to a halt like in some countries like Iceland, but has just slowed down because the urban areas where the IT sector flourishes was badly hit.
India has about 35% of its population in urban areas and about 65% in rural areas. All the jobs that were lost were confined only to urban areas. There was little affect on the rural territories. The rural sector is flourishing with more and more SHGs coming up everyday and the manufacturing sector also has not felt the heat. Recession or no recession, Ambanis are still intent on acquiring companies like MTN and fighting over the rights of Krishna-Godavari gas basin back home.
In this way , our very “over-population”, has helped us in shielding the corrosive effect of the global financial meltdown. As I said, sometimes our weaknesses are our Strengths!
There were huge job losses in India too esp in the export sector but IT/ITES & Finance are the ones where employees are more vocal about their losses. They get immediate media coverage, in blogs which outlines their job losses as if the world is falling. Almost all sectors freezed fresh recruitment which became a major challenge to the freshers. If you compare data, the job loss in IT/ITES & finance sectors are miniscule proportion of the job loss in the export sector. The export sector is still bleeding where as there are visible green overshoots in other sectors.
But Yes, the overall insight is quite correct, India was not too badly hit like the western counterparts. Out economy was resilient to move back into growth track so soon. Thanks to our consumption boom from many factors like good monsoon in previous year, pay commission, stimulus package and massive government spending etc. This time we should be thankful to the rural economy shouldering the heavier side of the yolk during time of crisis.
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There were huge job losses in India too esp in the export sector but IT/ITES & Finance are the ones where employees are more vocal about their losses. They get immediate media coverage, in blogs which outlines their job losses as if the world is falling. Almost all sectors freezed fresh recruitment which became a major challenge to the freshers. If you compare data, the job loss in IT/ITES & finance sectors are miniscule proportion of the job loss in the export sector. The export sector is still bleeding where as there are visible green overshoots in other sectors.
But Yes, the overall insight is quite correct, India was not too badly hit like the western counterparts. Out economy was resilient to move back into growth track so soon. Thanks to our consumption boom from many factors like good monsoon in previous year, pay commission, stimulus package and massive government spending etc. This time we should be thankful to the rural economy shouldering the heavier side of the yolk during time of crisis.