Amid the fears of Euro zone falling apart prompted by concerns of troubled Greece leaving Euro, talks of another recession cyclone hovering over Indian Ocean began as latest as almost last couple of months. But the general rationale was that "Ah boy...you know economy is a complex cyclic process, it always goes up & down... all is well.. don't worry da!!" Our Pronobda got just another reason to say with calm & (not) understandably confident face to "it is a cause of concern but Indian economy is in far safe position. We are keeping a close eye on it...!" (Probably he was still eying Presidential rosogulla more dearly than economic turmoil) well, thanks for keeping an eye on it. But sooner, the faults & ruptures in economies (not just Indian) slowly started surfacing up. First one to go down were the stock markets (for obvious reasons displaying lowered confidence and risk aversion attitude of investors) followed by currencies across the globe... S and P (with its unprecedented but equally valid outcomes), Moodey's joined the club sending tremors across different nations. Having integrated our economy to global one, India was bound to face the shocks. I will be surprised if leftists don't rise out of their slumbers to blame capitalist model of global economy for enslaving the public, letting 1% rich population reap the benefits destined for 99% of the rest. Although it is true to certain extent. Look at what's happening in France Presidential elections...Left parties are aiming to grab the power. After PIGS nations, France is slated to face lots of financial hardships. Occupy Wall Street movement would not have been conceived had there were no economic disparities. But its wrong to extrapolate the rightist attitude for all the "public bad" happening around the globe. There are more complex answers which go beyond the market practices brewing the brine we are tasting today. But hold on for a second... What did happen all of a sudden to the economy which was growing quite nicely so far? Why is India (I've deliberately not said ChIndia...China is contracting too, but seems to be on much better track than India even while it is undergoing once-in-generation regime change) unable to act as just another cushion for absorbing shocks along with other emerging markets as it did in 2008 crisis? Answers are hidden in the past few years. Let me again remind you that what happens in the economy today, is a result of what has happened in the past- at least one financial year...sometimes more than that.
What's wrong now-
Lehman Bros' going down in 2008, surfaced one of the biggest financial blunders in the recent US history. It sent out all sorts of negative, distress, warning etc. etc. signals to all over the world. Later India suffered massive blow of Mumbai terrorist attack. But, India acted as a Cushion to absorb the shocks & gained quite a lot than it lost. Although India relied on 20% of its GDP through exports (almost half than China's), its worth noting that the world was still consuming however reduced rate it could, in those years. That wast the time when investors were ok with shifting their money away from Western Atlantic shores to Eastern Pacific & North of Indian Ocean since these economies had been displaying resilience coupled with timely policy and decision making. In short, top guys from these nations knew what to spend money on.
Edit the scene and land in 2012, there are lots of negative factors indicating something has gone damn wrong with all of these emerging economies. First of all, lets be very clear that all that has been going on since this financial year began, is not completely a result of something happening off-shore (especially in Europe). No doubt that it has been one of the contributing factors but you can't put the blame entirely on "outsourced" reasons that our leaders have hired in recent past.
Now, lets bring export guys in the picture; most of the emerging economies. They face serious limitations on their trade business since their goods don't flow abroad as they had been previously. So, there is a serious situation of surplus goods in their domestic economy but overall fixed number of takers. So, companies slowly start reducing their productions which sometimes also lead to elevated levels of unemployment since these companies trim their staff fleet in order to scale the profit mountains. It leaves still less number of people with less amount of money. Therefore, people again turn conservative and look out for safe saving alternatives.... BANKS. Apparently, as RBI is apparently happy with existing key rates (such as CRR, SLR, Interest rates), there is a limited scope for injecting liquidity in the domestic market. However, this situation can't last long. While writing this blog, I am seeing reports in the media claiming that the time of rates cuts is inevitable & can be felt as early as by mid-June. This is obvious. Considering zeal with which RBI is handling devaluation of currency, it surely will cut the interest rates to boost flowing money in the economy and it will hope to reduce the inflation. Inflation.......this is exactly where the whole oil problem comes into picture. But before going deep into petrol-politics, let me make a point that there is bound to be a "Neo Hindu Rate of Growth" on the Indian economic horizon, it will take at least couple of financial years for India to come out of it again. Till then Mr. Pirtoda & gang may attain intellectual satisfaction by claiming that India will achieve 8-10% GDP growth for next 20-25 years while shaking hands with Mrs. H. R. Clinton. That's just too much. Nobody predicts for that long in the economics. There are too many variables to be certain about something like a forecast for over two decades of GDP growth. Of course, lot of things depends on who enters 7, RCR post-2014, how UPA crawls (yeah...UPA hasn't been walking at all) in its remaining tenure and how 12th Five Year Plan is rolled out. However dismal the picture of Indian economy might look like, believe me, it will still be better than the normal picture in Europe or rest of the world. That, is not just a sentiment fueled projection.
No matter how much economists, environmentalists and environmental scientists advocate for the need of establishing "Petrolics Anonymous", economies around the globe show a little interest in getting rid of this dirty addiction completely. Few sincere guys are doing something here and there but that just it...rest of the world is still happy with smokestacks. So as long as crude oil consumption is high, its foolish to blame OPEC for letting oil prices to shoot up. Its not their fault...its you who is consuming it....!! India has not yet shed the burden of oil prices fully on the consumers. There is still subsidy regime protecting domestic consumers from oil & allied combustible substances. That's what puts more strain on public spending. Talking of hard-core free market economics, such subsidies are to be abolished totally, which would let Indian economy keep its inflation from spurring out of control....something similar to what India's Fiscal Responsibility and Budget Management Act envisages to achieve (not to mention that government has been postponing the total implementation of the same for some or the other reasons). But will that scene be pleasant? of course not...!! What are you smoking bro? Wood? Ahh....alright. Then you are left with only best possible alternative involving two sub-components- Run away as much as possible towards renewable sources (rely more on gas at least) & tax the oil addicts for not leaving the addiction....(slow poisoning business. Imagine yourself dreaming of a petrol car two years ago.. What are your priorities now?? Buying shares in Real estate?). Looking at the government's plans for taxing diesel cars, one can say plan B is very much on the cards.
When you are talking about crude oil. you can't take out complex Geo-political factors out of the picture. Yes...no matter what Obama says, here, you just CAN'T..!! Nuisance maker Mr. Ahamadinejad, Chinese aggressive pursuit of oil-gas not only in Asia but also on all the possible such sources this planet can provide (their implications for India), proximity to Gulf countries for oil and natural gas, hoping for Arctic circle to melt in summer- if possible, for the whole year so that Gazprom can start aggressive oil drilling, so on & so forth. But considering the possibility that India will never be able to completely shed the oil and gas prices burden on domestic customers - even if Dr. Singh's Government fully recovers from policy paralysis- we are in a very tricky condition. Adding salt to injury, Reliance's crude oil output declined from giant KG Basin. There is a legal war going on, but the fact for the time being is, domestic oil production is not as good as it had been planned. Alternative fuel sources are the need of the hour.
What to do now??-
Lets be very clear that boosting confidence in the external investors in commodity market will never help in the long run since they will always be the first ones to pour their money in the market when it is warm and will always be champion runners when economy is murky. So, looking at the economy through investors' and stock market's perspective is not always a good habit. I would like to view this financial crisis as the best possible opportunity this problem ridden UPA-II government can have. Yes..!! you read it correct. In fact, economic down turns have always a been blessing in disguise. This is the time when government (must?) puts its acts together, take up major infrastructure projects to boost the economic cycle, ensure leak free dispatch of public benefits to the target masses, STAY AWAY FROM SHORT TERM BENEFICIAL SCHEMES AND ANNOUNCEMENTS, regulate the cash flow in the economy through aggressive tax measures and through RBI channel, BRING-IN THE BLACK MONEY OVERSEAS, and last but not the least, consider this as the best possible time to implement long term action plans addressing all suitable concerns and with humane actions. Let me tell you, Indian economy will grow at minimum 6% GDP given its huge middle class market over next couple of years, but if UPA-II does take at least some of these measures seriously while avoiding further political (and moral) deterioration of the nation, Prime Minister Singh will be recognised as a man who conceived the engineering plan for national economy and completed the Phase II of the plan while being in centre (though not in power...LOL) something similar to what Deng Xiaoping is for People's Republic of China. Indian economy will be in a much better condition by Lok Sabha elections in 2014 (if Mamata Banerjee doesn't perform Durga Puja festival dance for mid term elections) and it will wipe out whatever the diminishing chances NDA's too many PMs- in- waiting are dreaming of driving Dr. Singh out of 7, RCR. But looking at the way how UPA (predominantly Congress) is handling Presidential election process....I am a whole lot skeptical as far as execution of these things is concerned. तर मग भाऊ ...सध्या जरा जपूनच ...!!! :) :) :)
What's wrong now-
Lehman Bros' going down in 2008, surfaced one of the biggest financial blunders in the recent US history. It sent out all sorts of negative, distress, warning etc. etc. signals to all over the world. Later India suffered massive blow of Mumbai terrorist attack. But, India acted as a Cushion to absorb the shocks & gained quite a lot than it lost. Although India relied on 20% of its GDP through exports (almost half than China's), its worth noting that the world was still consuming however reduced rate it could, in those years. That wast the time when investors were ok with shifting their money away from Western Atlantic shores to Eastern Pacific & North of Indian Ocean since these economies had been displaying resilience coupled with timely policy and decision making. In short, top guys from these nations knew what to spend money on.
Edit the scene and land in 2012, there are lots of negative factors indicating something has gone damn wrong with all of these emerging economies. First of all, lets be very clear that all that has been going on since this financial year began, is not completely a result of something happening off-shore (especially in Europe). No doubt that it has been one of the contributing factors but you can't put the blame entirely on "outsourced" reasons that our leaders have hired in recent past.
- Oil is not a lubricant sometimes and trade is not always a pleasant business-
Now, lets bring export guys in the picture; most of the emerging economies. They face serious limitations on their trade business since their goods don't flow abroad as they had been previously. So, there is a serious situation of surplus goods in their domestic economy but overall fixed number of takers. So, companies slowly start reducing their productions which sometimes also lead to elevated levels of unemployment since these companies trim their staff fleet in order to scale the profit mountains. It leaves still less number of people with less amount of money. Therefore, people again turn conservative and look out for safe saving alternatives.... BANKS. Apparently, as RBI is apparently happy with existing key rates (such as CRR, SLR, Interest rates), there is a limited scope for injecting liquidity in the domestic market. However, this situation can't last long. While writing this blog, I am seeing reports in the media claiming that the time of rates cuts is inevitable & can be felt as early as by mid-June. This is obvious. Considering zeal with which RBI is handling devaluation of currency, it surely will cut the interest rates to boost flowing money in the economy and it will hope to reduce the inflation. Inflation.......this is exactly where the whole oil problem comes into picture. But before going deep into petrol-politics, let me make a point that there is bound to be a "Neo Hindu Rate of Growth" on the Indian economic horizon, it will take at least couple of financial years for India to come out of it again. Till then Mr. Pirtoda & gang may attain intellectual satisfaction by claiming that India will achieve 8-10% GDP growth for next 20-25 years while shaking hands with Mrs. H. R. Clinton. That's just too much. Nobody predicts for that long in the economics. There are too many variables to be certain about something like a forecast for over two decades of GDP growth. Of course, lot of things depends on who enters 7, RCR post-2014, how UPA crawls (yeah...UPA hasn't been walking at all) in its remaining tenure and how 12th Five Year Plan is rolled out. However dismal the picture of Indian economy might look like, believe me, it will still be better than the normal picture in Europe or rest of the world. That, is not just a sentiment fueled projection.
No matter how much economists, environmentalists and environmental scientists advocate for the need of establishing "Petrolics Anonymous", economies around the globe show a little interest in getting rid of this dirty addiction completely. Few sincere guys are doing something here and there but that just it...rest of the world is still happy with smokestacks. So as long as crude oil consumption is high, its foolish to blame OPEC for letting oil prices to shoot up. Its not their fault...its you who is consuming it....!! India has not yet shed the burden of oil prices fully on the consumers. There is still subsidy regime protecting domestic consumers from oil & allied combustible substances. That's what puts more strain on public spending. Talking of hard-core free market economics, such subsidies are to be abolished totally, which would let Indian economy keep its inflation from spurring out of control....something similar to what India's Fiscal Responsibility and Budget Management Act envisages to achieve (not to mention that government has been postponing the total implementation of the same for some or the other reasons). But will that scene be pleasant? of course not...!! What are you smoking bro? Wood? Ahh....alright. Then you are left with only best possible alternative involving two sub-components- Run away as much as possible towards renewable sources (rely more on gas at least) & tax the oil addicts for not leaving the addiction....(slow poisoning business. Imagine yourself dreaming of a petrol car two years ago.. What are your priorities now?? Buying shares in Real estate?). Looking at the government's plans for taxing diesel cars, one can say plan B is very much on the cards.
When you are talking about crude oil. you can't take out complex Geo-political factors out of the picture. Yes...no matter what Obama says, here, you just CAN'T..!! Nuisance maker Mr. Ahamadinejad, Chinese aggressive pursuit of oil-gas not only in Asia but also on all the possible such sources this planet can provide (their implications for India), proximity to Gulf countries for oil and natural gas, hoping for Arctic circle to melt in summer- if possible, for the whole year so that Gazprom can start aggressive oil drilling, so on & so forth. But considering the possibility that India will never be able to completely shed the oil and gas prices burden on domestic customers - even if Dr. Singh's Government fully recovers from policy paralysis- we are in a very tricky condition. Adding salt to injury, Reliance's crude oil output declined from giant KG Basin. There is a legal war going on, but the fact for the time being is, domestic oil production is not as good as it had been planned. Alternative fuel sources are the need of the hour.
What to do now??-
Lets be very clear that boosting confidence in the external investors in commodity market will never help in the long run since they will always be the first ones to pour their money in the market when it is warm and will always be champion runners when economy is murky. So, looking at the economy through investors' and stock market's perspective is not always a good habit. I would like to view this financial crisis as the best possible opportunity this problem ridden UPA-II government can have. Yes..!! you read it correct. In fact, economic down turns have always a been blessing in disguise. This is the time when government (must?) puts its acts together, take up major infrastructure projects to boost the economic cycle, ensure leak free dispatch of public benefits to the target masses, STAY AWAY FROM SHORT TERM BENEFICIAL SCHEMES AND ANNOUNCEMENTS, regulate the cash flow in the economy through aggressive tax measures and through RBI channel, BRING-IN THE BLACK MONEY OVERSEAS, and last but not the least, consider this as the best possible time to implement long term action plans addressing all suitable concerns and with humane actions. Let me tell you, Indian economy will grow at minimum 6% GDP given its huge middle class market over next couple of years, but if UPA-II does take at least some of these measures seriously while avoiding further political (and moral) deterioration of the nation, Prime Minister Singh will be recognised as a man who conceived the engineering plan for national economy and completed the Phase II of the plan while being in centre (though not in power...LOL) something similar to what Deng Xiaoping is for People's Republic of China. Indian economy will be in a much better condition by Lok Sabha elections in 2014 (if Mamata Banerjee doesn't perform Durga Puja festival dance for mid term elections) and it will wipe out whatever the diminishing chances NDA's too many PMs- in- waiting are dreaming of driving Dr. Singh out of 7, RCR. But looking at the way how UPA (predominantly Congress) is handling Presidential election process....I am a whole lot skeptical as far as execution of these things is concerned. तर मग भाऊ ...सध्या जरा जपूनच ...!!! :) :) :)
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