Jai Ho!!!.

JAI HO!!!

As expected the slum dog millionaire steal the Oscar award night by grabbing 8 Oscar awards. This movie has touched the heart of the United States. The story is about a slum boy becoming millionaire. A. R. Rahman got Oscar for the song Jai Ho. In fact the whole world now sings Jai Ho as they are seeing India and China as the hope. This movie story gives a ray of hope for them as they are going through a worst financial situation. This has got more attention as this is an Indian story. And this is the time world is keenly looking to India and China. Because the world thinks that India and China can help the world to over come this slow down as now these two emerging nations are the economic growth engines of the world. Anil K Gupta, author and professor of strategy, university of Maryland once said at a conference about the growth of China and India “emergence of China and India is like the emergence of the internet, here to stay and the only real option for us is to get on board.”

As the world’s perception is like this; in reality what is our situation. Is there any base for world to think like that? If we check the potentials of India, we have the strength to fulfill the world’s expectation. India is having the world’s largest middle class population.70% growth is internal and only 30 % is from external ie skilled human resources well developed domestic market, variety of natural wealth etc.  Another one bright spot of India is the high savings rate, which is about 35 percent, means that about $200 billion a year is saved.  There is an opportunity in every crisis. In fact, this is an opportunity for India to become an economic super power.

Not only for economic rejuvenation but for new invention and R&D also, world is looking towards India. And it is the time, world is keenly looking towards the Indian economy model, the mixed economy - regulated-liberalization. The other two models- the Command Economy, proved as a flop after the fall of such system in former Soviet Union and eastern European block, and now China is also facing some negatives of such system. Another one, a Fully Capitalism model also proved flop several times and now the present crisis is also a donation of such free regulated economy. The former one is like a nursery school regulated by stringent rules and latter a pre-high school without any teachers. In India we have liberalization and globalization but at the same time we also have basically sound regulatory mechanisms to provide the economy in a frame of safety. This system is proving and proclaims as the best suitable for the modern world and if followed, a situation like today’s can be avoided.  

When comparing China and India, joblessness is a much worried problem in China than in India, since the Chinese economy is concentrated much on manufacturing sector and this sector has been affected badly by the slowdown in USA and other world. More over, China is more depended on exports; hence their majority chunk of the growth is from external. These are the main constraints and concerns that china confronts to become the world economic giant.  But things are favor to India. Indian economy is a balanced and well diversified one, not much dependent on any sector, balanced between manufacturing and service sector, and is having lesser dependency on exports. The real constraints in front of us are lack of strong decision making on policies, lack of natural energy reserves, as we are much dependent on imported oil and finally the infrastructure bottlenecks.

But current outcomes are not promising. Our corporate earnings are coming down. The IT sector, India’s growth engine is going through the most difficult times. In simple words we are also feeling the taste of the economic slowdown, the Indian GDP growth projections has slipped to 6.5-7 per cent from 8.5-9 per cent. As an indicator industrial production data for December 2008 came out with one of the worst performances on record at negative 2 percent.

India has recorded a GDP growth of 5.3 percent in the quarter ended December 2008. Even though it is lower when compared with the previous year, it is far better against the 6.2 % contraction in USA and 12.7 % shrink in the Japan. It shows India’s trillion-dollar economy remains a relative bright spot.

In a recent presentation Mr. Nandan Nilekani, the co-chairman of Infosys Technologies, said “It is reasonable to assume that India will be among the first to recover when the recovery starts,” And Indian business leaders seem to be more optimistic than others around the world. India has topped the latest round of the Nielsen Consumer Confidence Survey.

Under these circumstances what government can do? Government can do a lot. Government can boost the economy by productive investment in infrastructure and poverty alleviation. By spending money for improving the country’s infrastructure, the economic activities of the country will improve. Thus increases employment and overall growth of the economy; like the US government did in the time of great depression in 1930’s.There is indeed much to do in the infrastructure sector to make it come up to international  standards. The present infrastructure of India is not enough to support the future growth of the country.  And now as prices of the commodities are coming down globally, we can save the cost also.

But rising fiscal deficit which has increased to 6% of the GDP from expected 2.5% is really a concern for the government and that is one of the fact that restrain the government from large spending. But at the time of such economic slowdown much emphasis on fiscal deficit can be avoided for time being and when comparing other nation’s fiscal deficit, including the developed and emerging nations this gap is not an alarming one. Also we can compensate this gap by collecting tax when economy overcomes this crisis. In simple, Government should utilize this opportunity rather than sitting idle restrained by constraints and threats of risk. Might be due to the elections the government has not taken any aggressive decision to rejuvenate the economy. But hopes that after the election the new government will do the need full. So that we can become a economic super power, Jai Ho!!!.  

Krishnan Thampi K

Head – Research

Capstocks & Securities (India) Pvt Ltd