Monday, March 16, 2009

Global Economic Slowdown and India

I have been asked this question by quite a few people "How is the situation in India and has the global economic slowdown effected our country?". It will be foolish to state that there has been no effect of the global economic slowdown on our country. Yes, it has effected us but has it effected us so greatly like it has in Russia, Singapore, Hong Kong, to an extent China and so on. The answer is clearly no. And given below are my reasons as to why I think it has not effected us as much as it has effected them.
  • We are not really opened up our economy as much as those countries have. We have been slow to do it and have done it in small baby steps that has made sure that very good regulatory mechanisms have been put in place. So although this has not resulted in great economic progress at the same time it has also not resulted in great economic decline. As they say faster the rise faster the fall - in our case since it was slower to rise so it is slower to fall.
  • The Indian market itself is a very big market and people have ample money to spend. Indians like hoarding up money at home in the form of cash, jewellery, gold bars and what not - they dont invest their money as much in the stock market or in risky investments. Since we are risk averse we have not had as much money available in the system for investments and growth but this has also ensured that there is far less money in the system for investments that are made in a bubble. So most people have ensured that the money they have is safe. As long as people have money in their hands they will spend it.
  • Black money will keep our economy going even if the money in the system will disappear. People will spend money as long as they have it. So even if there is no other money to make investments or to spend we can be assured that there will be black money that will do the job.
  • It is election time and all the cash is coming out. Politicians will ensure there is money in the system as we watched on TV the other day people being handed over hundred rupee notes. All this money will enter this system very quickly. If it was me I would have taken that Rs. 100 and gone and bought something to eat and drink - the person who sold me the stuff would go and either put it in the bank or he will go buy more ingredients and then that person who sold it will do something with it thus bringing it back into the system.
So India might not see the beautiful 9% year on year growth it has seen the last few years but at the same time it will not see a recession too. We can keep ourselves going and when the economy bounces back we will be the most prepared to take on all the additional work that will be created.

1 comment:

Greensleeves said...

Dear Sudeep,

I have just started a blog. As a starting point I looked at a few others to see how they (you) got started. I just wanted to tell you that you have done a wonderful job making an interesting and insightful site. I'll keep your link and look forward to your entries.

Best Regards, Steve Greenfield