WILL G-20 BE 2ND BRETTON WOOD?

(WIIL YOU CARRY ME TOO ?)

Will the forthcoming G-20 be 2nd Bretton wood or the media hype will collapse like the financial architecture of the west including America? It will be unravelled within a couple of days from now.

All developed nations seems divided on the issue as to what strategy should countries adopt so salvage the sinking economy. The Anglo-American lobby is of the view that all nations including the developing third world countries should imitate and prescribe for stimulus packages in order to inject liquidity into the economy. Before Obama, Bush has also enacted TARP in order to rejuvenate the ailing US economy. The 700 Billion dollars rescue and bailout package has sunk after making initial ripples. The 800 plus billion dollars 2nd rescue and rehabilitation Act enacted by Obama is yet make its healing effect felt. 

UK has already unveiled 786 US dollar rescue package but it too has failed to give any impressive positive improvement in the economy. Gordon Brown, one the other hand is to face general elections in his country next year. Tony Blair, his predecessor, who has earned a reputation of being a satellite to Bush has made his countries economy only subservient to the USA. His most of the statements used to be in resonance with that of Bush. Brown wants that this legacy of his predecessors to be carried forward. Thus, both Brown and Obama are staunch supporter of the view that the present global economic downturn can be turned around by stimulus packages and injection of more and more money into the financial systems. They advocate for more free trade, more lending by banks and more innovating steps by the financial systems, but conversely in their respective homes, they resort to protectionist measures. 'Buy American clause' in the Obama’s much publicised economic drug therapy to jerk start the terminally paralysed US economy, is an living example of protectionism trade policy. The restriction in H1B visa is another example of similar protectionist attitude of the Americans. The British followed the same trend. British's call 'british factories for britons' augument this trend and it seems that the champions of free trade and free society are scared themselves and are shutting down their own shutters to stop apprehended influx of job seekers.

Germany and France on the other hand are averse to those steps in which more and more money is injected into the economy . Markel is wedded to the idea of tightening the screws of financial institutions. She has blatantly refused the line of treatment prescribed by the duo,Brown and Obama.

Sarkozy also did not favour Obama-Brown’s prescriptions of pumping money into the economy. In fact in the garb of this whole financial and economic muscle flexing, the politics is being pursued that who emerges the leader of the world. Sarkozy and Brown, on the other hand are hornlocked to win the game. Those who win will be the european leader. Thus behind the curtain the issue is that who will lead the world. 

America revealed its unhidden desire to lead the world when Obama reiterated that US is ready to lead the world and the world should follow it. He has forgotten that US is no more in the pre-global recession period. Moreover, this contageion has originated and exported to the rest of the world by none other than the US itself. The unquestioned hegemony of Americans in the field of economic arena is being undermined. It has already under stress. Its treasury bills have been purchased by Asian giant, China. The new term ‘Chimerica’ coined by Niall Ferguson has projected the forthcoming global economy and position of China in it. ‘Together we swim and separated we sink’, a slogan given by Americans has made it clear that Chinese would definitely get a lion’s share, and not dragon’s share in the new emerging global financial order which is likely to emerge out of the G-20 London Summit.

Obama’s assertion that world needs America and so does America, discloses the gravity of situation. US, hitherto the self acclaimed economic and military leader of the world, has started talking about philosophy of coalition, cooperation and partnership. What a huge change of attitude! Continuing its state of inertia, even Obama is not pursuing consensul politics. If you continue to take unilateral decisions and expect that everyone would follow it, is not going to serve the purpose.

America needs world more desperately than ever before, but at the same time, it still wants to drive the vehicle of global economy by itself, a vehicle which met accident ( global economic downturn) due to its recklessness only. We therfore, need to change the driver itself and assume the steering the economic vehicle of the world so that the next journey is safe and it could reach destination. 

What, then we, ought to do at the G-20 summit? The world is standing at the threshold of a new era, a post American era. Let the leadership be changed. Emerging economies of the world, china, India, Brazil, South Africa, Japan, South Korea etc are in the waiting queue. Not only the World financial architecture but in fact the entire world order as whole, need to be changed. After all Obama, himself had said that the change has arrived.

'BUY AMERICAN' ;IS IT ANOTHER SMOOT-HAWLEY ACT?

SENATOR SMOOT; THE ARCHITECT OF THE ACT

The 'buy american' clause in the Obama's 819 billion USD stimulus package has raise eye brows of many countries including India. The wave of prtectionism is blowing across the globe. The restriction in H-1B visa by USA and tightening of screws by British immigration authorities with regard to job seekers from Asian especially from coutries like India have set in this trend which will be imitated if not retaliated by many other countries across the globe. 

Similar steps had been taken by the USA after the great depression of 1930, when republican senator Reed smoot from Utah and another republcan C Hawley from Oregaon drafted America's most negative legislation called Smoot-Hawley bill which was passed by House in May, 1929. It was widely opposed by the contemporary economists of America itself, but since Hoover had made promise to the farmers of such protection, he got it implemented.It proved disastrous for not only Amrica but for the whole Europr if not the whole world. Similar retaliatory steps were taken by Britain, France, Germany and a host of such countries. They raised their tariff walls against the American goods and the export of American good fell down sharply. According to date available on the wikipedia, the export of USA fell from 2341 million dollar in 1929 to 784 million dollar in 1932. Result was catastrophic, the American Industries had to cut down production as the export fell,this led to job cuts. The figures suggest that the unemployement which was 7.8% in 1930 rose to 25.1% in 1933.

It seems that Americans have not learnt anything from history. Although Obama is opposed to this clause, the republicans are again doing the same mistakes. This clause may benifit US economy in short term but in long term this would result in negative growth of America. The export of software industries and aircrafts to countries like India, China and Brazil may go down if these countries resort to same kind of retaliatory measures.

This clause also goes against the ethos of free trade economy. If we talk in terms of a global village how can we resort to such a primitive and economically naive steps. Time has come for the Americans to ponder that much water have spilled since the first depression. World is changing and the room on the chess board is shrinking.

According to the latest figures released by the Commerce department of USA, the GDP has underwent contraction by more than 6%. Earlier it was estimated that the contraction would be less than 3% but it went more than the estimate. Obama's stimulus package lauched by the US administration is expected to show its positive results after a couple of months. This unprecedented contraction in GDP is due to decrease in domestic spending which is all time low. The figures suggest that the American export has underwent downward trend highest ever since 1970s. The Buy American clause in the stimulus package, on principle, is opposed by Obama but it is not being conceived in wider perspective.

IS LAISSEZ-FAIRE IN REVESE GEAR?

( BROWN AND SARKOZY,IS HONEYMOON OVER?)

THE world economic down turn has started showing its ugly and horrendous faces in social spectra also. The impact of this recession is gradually percolating down vertically and spreading horizontally across the global village. The economic depression, the product of U.S.A., is being exported throughout the length and breadth of globe and letting its jitters felt in all sections of the society.

In Europe , France is witnessing the worst ever street-protests against the alleged failure of the government in tackling the economic slowdown and mitigating the woes of its citizens. President Sarkozy is facing a grave challenge and the sweet memories of his honeymoon with Bruni are fading. This unrest has strained his relation with Gordon Brown also. Britain on the other hand, is also witnessing protests and anti-government demonstrations. “British company only for British employees” is being advocated for, very staunchly. In fact British companies have been hiring cheap paid employees from other European countries, are permissible in European Union Law, and are becoming bone of contention.

Similar social and political unrests are being witnessed in Russia and in many other erstwhile members of Warsaw Pact countries. Prime Minister Putin and President Dmitry Medevedev have been facing rough weathers in Russia. Putin, once hero of Russian people, whose popularity was said to be at a soaring level, when he quitted the presidency, is also under tremendous pressure.

Even in America, people are taking to streets and demanding tough, decisive and result oriented steps so that their lives are brought back to normalcy. In spite of Bush’s 700 billion dollar TARP (bailout package) more than 18000 jobs are being lost every month. According to America’s own labour department statistics, the un-employment rate is about to touch a double digit figure, a all time high in the post depression economic history of the country. Obama’s historic coronation to the Whitehouse seat has instilled a huge amount of hopes, which is both an asset as well as liability for this first African-American non-white president. His 836 billion dollar US Stimulus package will take few more months to make its impact felt in the socio-economic arena. Till then the American society’s patience will be put to test.

The Asian dragon, the republic of China, hitherto unscathed from the scratches of the down turn is also undergoing socio-economic as well as political upheavals. The massive 900 PLUS billion dollar stimulus package has been put on top gear of the economic vehicle. The thirst, the government says, will be on ways and employment oriented infrastructural developmental activities like Rail and roadways constructions. In spite of this the growth of this Asian Giant has shrinked to 7.5 percent. The toys industries, one of the biggest exporters of the world, have suffered very badly. It has butchered the employment to such an extent that the stimulus package’s after effects are also being neutralised.

India, one of the fastest growing economies of the world, too could not remain insulated from the viral infection of the global economic ailment. The massive pumping of liquidity into the financial systems through frequent rate cuts in CRR, SLR, REPO and REVERSE REPO RATES have applied some ointments on the bleeding wounds of economy but still a lot is required to be done. The stimulus package of Montek has a long way to go before it reaches to the tattered masses. The brunt of the slowdown has taken millions of jobs head here in India also but the social and political unrest at a magnitude similar to those in other parts of globe is not imminent here. Thanks to the accustomed Indian psyche and its endless power of tolerance. The institutionalised and bureaucratised network of social security system has done a commendable job here in this country. NATIONAL RURAL EMPLOYMENT GUARANTEE SCHEMES (NREGS), the brain child UPA government, has come as a huge relief for the people living below the poverty lines in the countryside. The massive allocation of more than 60 thousand crore rupees over a period of 3 years has done miracles in the rural economy of this country in the sense that it has provided pennies in the pockets of billions of people. It worked on KEYENESIAN theory which is based on the principle of government expenditure vis-a-vis the purchasing power of people.

THE TREND OF PROTECTIONISM -The WTO has released a report that says that about 16 countries have take protectionis measures since September the last. Many experts believe that these anti-free trade measures will provoke retaliation from other countries also and may led to reveral of the entire process of free trade capitalism across the globe.The trend of protectionism is set in USA also, ‘Buy American’clausein America’s 819 billion dollars stimulus package smack of protectionism. US administration's decision regarding H-1B visa restrictions are not in congruent with the policy of ‘lazes- fairre’, a policy which America do not get tired of boasting. One 'Patriot employer Act' is on anvil, which will give incentives to the employers taking some protectionists and social security measures with respect to providing employement in USA. Many Europeans are tightening their immigration regulations with a sole motive of saving their economy and providing employment to their own citizens. America has imposed an undeclared ban on Chinese goods. The Japanese economy has shrunk to almost negative growth due to shrink in exports, the main growth factor coming in Japanese economy, to almost Zero level. This is suggestive of the fact that the importing countries have stopped Japanese goods into their countries. 

Many Europeans nations have resorted to such similar moves which go against the basic tenets of capitalism. Germany for example have provided huge subsidies to its industries and sought to protect its economy from the onslaught of the recession. Chinese have restricted imports and is providing unprecedented protection. President Sarkozy has hinted that some protectionist steps would be taken to save the ‘French Detroit’, move opposed by many European nations themselves.

Canada, Mexico, Brazil, Argentina, Russia, Ukraine, Japan, South Korea, etc all are on similar move. The sentiment is running high across the world in favour of protectionism and the ideals of free economy are being abhorred now.

The excessive financial leverage and excessive greed have ruined the financial fabric beyond repair. According to an estimate, the financial leverage in 1980 was 108% which rose to 600% in 2007 and lending was done of worth 600 trillion dollar whereas; the total Global GDP was only about 55 trillion dollar. What an excessive leverage and what as mad race it was.

The champions of ‘European Unification’ ‘Under One Europe’, one currency and one parliament under ‘European Union Umbrella’ are sitting quiet now. The global economic forums like WTO and World Economic Forum at Davos seem to have postponed their ‘Unified world market and non-subsidised’ world economy plans. All the motions, it seems have been kept in abeyance, thanks to Xenophobia everywhere.

IMPACT ON INDIA DUE TO ‘BUY AMERICAN’ CLAUSE- the Indo-US trade has witnessed spectacular rise over a decade. According to the Ministry of Commerce, the export from India to USA has been of 160 Billion dollar in 2007-08 which rose to 200 billion dollar in 2008-09. The chart below gives the picture of more than a decade-

1993 1994 1995 1996 1997 1998 1999 2000 

India’s Exports 4,551 5,302 5,736 6,169 7,322 8,237 9,071 10,686 

India’s Imports 2,761 2,296 3,296 3,318 3,608 3,564 3,688 3,663 

Turnover 7,312 7,598 9,032 9,487 10,931 11,801 12,759 14,349 

Balance (+) 1,790 3,005 2,440 2,851 3,715 4,673 5,383 7,023 

(* Source: US Department of Commerce, Bureau of Census) ,

The above figures suggest the increasing trend of the bilateral trade over the years which have reached more than 200 billion dollars. As far as the composition of the trade is concerned, India's exports to the US have been rising mainly on account of significant increases in the exports of diamonds, textiles and ready-made garments, machinery, carpets, footwear and leather products, dyes, iron and steel products, chemicals, edible fruit and nuts and spices, coffee and tea. Items such as, cut and polished non-industrial diamonds, jewellery, textiles and clothing, carpets, shrimp and other marine products, footwear and leather goods, iron and steel, and cashew nuts constitute over 70% of total Indian exports to the USA. 

The volume of these exports is expected to witness a downward trend owing to the restrictions imposed in the stimulus package. 

As far as import of India from USA is concerned, there has been a change in the composition of India’s imports from the USA also. Due to increase in our food grains production especially wheat and edible oils, the imports of these items from the USA on a regular basis have stopped. Crude oil, which remained one of the highest imported items from USA in 1980s has been gradually phased out.

At present, we import from America, items like machinery including project items, fertilizers, aircraft and aeronautical equipment, medical equipment, and organic chemicals etc. undoubtedly, if our exports experiences contraction, we would resort to contraction of imports from USA also in order to see that the balance of trades in not slated excessively in favour of USA 

USA is the largest trading partner of India. Share of USA in India’s export is 17%, and its monetary value as we have seen is more than 200 billion USD. This economic meltdown had already adversely affected India’s export in general and export to USA in particular. According to Federation of Exporters Association (FOE), the exports from India are already showing signs of decline due to this slowdown syndrome. Figures suggest that it is experiencing a decline of more than 15%.

The bilateral trade has been galloping with unprecedented pace due to variety of reasons, thanks to the cementing of bilateral ties over a number of issues including strategic and nuclear matters.

Although, this protectionist clause will help improve the situation in the domestic demand in America on short term basis, but in the long term, this would affect adversely the American trade also. If exports from this country plummets, similar retaliatory measures are taken by host of countries. 

1. EFFECT ON IT-BPO AND SERVICE SECTORS- the service sector constitutes 50% in our GDP, meaning thereby that this sector has witnessed boom over a decade or so.

Over a period of time, the export of this sector increased by 33.5% amounting to 8.4 b USD in 2007-07, it is expected to reach 10-11 b USD by the end of 2007-08. According to National Association of Software and services Companies (NASSCOM), the number of employees working in BPO-IT sector in India is under-

Year Number of employees

2003-04

2,16,000

2004-05 3,16,000

2005-06 4,15,000

2006-07 5,53,000

The current figure is certainly much more and is increasing day by day. According to one estimate it has touched a figure of 1 million. They were getting salaries worth 1 b USD during the year before last year and naturally it has increase substantially in 2008-09. According to one estimate, about 82% of US software companies prefer Indian software professionals for obvious reasons. 

The buy American clause would be adversely affecting this outsourcing industry also and Obama has made it clear that the American companies which outsource would not get tax reliefs. Message is clear, they would be discouraged from outsourcing the job to the Indian software sector in particular and service sector in general.

IS GREAT DEPRESSION COMING?

                                    CITADEL OF SAND; HOW LONG WILL IT LAST?

Hello countrymen,

The economic slowdown is spreading like contageon in every parts of the globe. Is it the sign of great depression?

Here is my view in it.

IS GREAT DEPRESSION OF 1930s COMING?

Is great depression is coming? Everyone in the world including in India is asking this question, to which none of the financial pundits is able to answer correctly. ‘Market gurus’ are making wild guess that ‘worst is over, hurricane has passed and settling down process will start soon. But the worst ever crash in at least 15 years on Friday, (likely to continue further also) which was observed as ‘black Friday’ by hundreds of thousands of plundered and ruined investors, belied all such forecasting of economic experts. Dow Jones fell by more than 600 Points, Nikkei by 800 Points, etc. in fact Friday mayhem was caused largely due to crash in Asian Markets. For instance in India BSE and NSE fell by more than 800 and 834 Points respectively on this day. Similarly, almost all stock markets in Asia, like Nikkei, Hang sang, Singapore etc fell sharply. The fear psychosis is such that in spite of repeated assertions made by the concerned governments that the ‘fundamentals of the economy are strong’, the investors could not be instilled with sufficient amount of confidence. The rumour of Banks facing liquidity crunch and probably going bankrupt, was rife and investors as well as common customers thought that whether their money is safe with the Banks. This caused panic in the market and added fuel to fire. 

In fact, the beginning of this ‘humungous crisis’ has had started well in 2004-2005 itself in many parts of the world. The artificial boom, the ‘housing bubble’ created by Bankers and property dealers led to over assessment of value of the real estates. The lending by Banks on the over assessed value of properties continued for some time. But when the Bank rates were increased, the borrowers found it difficult to pay the EMIs to the Banks. When, in order to recover the money, the Bankers tried to sell the mortgaged property; they encountered the real problem, because no one was ready to purchase them on the ‘highly inflated’ price. Thus the NPA started accumulating as the ‘non-payment syndrome’ spread like a wild fire. Since many of the Banks had sold many of their shares to other financial institutions, the non payment led to fall in the prices of these shares also. Thus the ‘housing bubble’ has bust. 

Banks started getting dry of liquidity due to ‘withdrawal spree’ because news started ‘leaking’ that Bank would not be able to ‘honour cheques’. The Lehman brothers followed by Merrill Lynch and Morgan Stanley had collapsed by now. 

It is however, a wrong proposition that had Lehman brothers been saved, the market would have not collapsed. The problem by now had entrenched into the essentials of the stock market itself. The ‘over greed’, becoming billionaire overnight has dried up the ‘spring of business ethics’ almost totally. The desert left is capable of supplying sand and only sand, this contagion has spread globally and even India, the land of ‘Chanakya’ and ‘Megasthanes’ has turned into land of schamsters like Harshad Mehta and a host of such bookies. The ‘blind race’ of minting money resulted into overstretched competition among financial institutions which were unnecessarily exposed to ‘unhygienic business environment’ causing this disease to spread. 

Street Wall, the citadel of US economy, had collapsed. Walls were burgled and plunders were in. During Napoleon days it was said that ‘when France catches cold, the whole world sneezes.’ Now it should be said that when thorn pricks the US economy, the emanating pain reaches to whole of the markets including Bombay stock exchange. Therefore; the whole world including European Union, Russia, Japan, Middle-East and India is reeling under acute financial turmoil following the crash in Wall Street.

The situation is somewhat similar to what it was during the ‘great depression of 1930’. The results are similar, so are the reasons.

The great depression of 1930s was caused by a combination of factors like unequal distribution of wealth, high tariff and war debts, over production in industry and agriculture, stock market crash and financial panic. The effects were devastating, like wide spread huger and unemployment (25%), worldwide economic crisis, world market recession and collapse of concept of total free market economy etc.

The political result was defeat of republicans and victory of Franklin. D. Roosevelt (democrat). The history seems being repeated again. This depression is also caused when Bush (republican) is in power. Will it pave way Obama to come to ‘White House’?

President Hoover had said just before the crisis ‘economy is fundamentally sound’ and similarly Mc Cain said ‘the fundamental of US economy is strong’, just before the crash of Lehman Brothers. The American’s ‘war on terror’ has increased the debt by about 79% and is putting enormous economic pressure on economies of many European coalition partners including UK and France. Nobel laureate Joseph Stieglitz say ‘the war on terror’ in an attempt to ‘export American type of democracy’ to the rest of world has cost 3 trillion dollar, three times the GDP of a country like India.

Churchill had said ‘if socialism suffers from vice of and equal sharing of misery, then capitalism is afflicted with the vice of an unequal sharing of affluence’. The continued inequalities in affluence worldwide cannot allow the ‘glass house’ to remain unbroken for longer period. 

The hard earned money of citizens of these countries has been thrown and pumped into the unending wars and thus it was bound to have repercussions like those which we see today. The US type of economy and US type of democracy have been exposed once again. How long the citadel of sand will withstand the onslaught of realities. The stock market economy is basically based on the jargons of figures appearing on the computer screens. The bookies and brokers play with the figures and sometimes with the sentiments of investors also. The unethical business tricks are praised as ‘Business mantras’. The wooden pot cannot be kept for long on fire. 

Signs of crisis have started making their presence felt everywhere including USA and India. According to the data released by the Labour Bureau of US, about 7, 60,000 jobs have been cut by now, 1, 59,000 in September itself. Results are devastating, American psyche has shaken, so did the essentials of the economy. The US administration hurriedly came out with a rescue package of 700 billion dollars. The troubled asset rescue plan (TARP) is introduced to save the economy. Other European as well as Asian countries have also come out with similar rescue or what they called ‘Bailout package’ plan to save the market and especially financial institutions. But there was no concerted and well-coordinated financial effort by the European Union as such. 

In fact, G-7 leader began a meeting in Washington late Friday, to find common solution and propose concerted and coordinated steps in order to fight the menace jointly on global level. But despite several rounds of talks, no consensus could be arrived at. The concept therefore; of a ‘politically and economically unified Europe’ collapsed like ‘wall of sand’ and ‘myth of liberal democracy and export of American democracy’ seems ceased to exist. 

Every individual European country was taking steps on its own and for its own. If total bailout packages are summed together, it comes nearly about 3 trillion dollar. See the chart-

Country Bailout package

USA 700 billion USD in one go, total 990 billion USD 

RUSSIA 86 billion USD

UK 32.5 billion USD, revised 876 billion USD

GERMANY 50 billion USD

BELGIUM 16 billion USD

IRELAND 752 billion USD

IRELAND 864 billion USD ten times its total GDP

FRANCE 237 billion pound 

INDIA More than 60,000 Crores in form of CRR cut by R.B.I.

But even after this heavy dose of financial injection into the ailing economy, after initial hiccups, these efforts to stem financial markets and specially Banks dipped in the quagmire of crisis. There is stampede everywhere and panic has gripped the entire globe. According to figures made available, the total amount involved in the rescue package in Europe and America only, is about 1.8 trillion dollars, which is almost equal to double the GDP of India, which is about 46, 93,602 crores. Magnitude of crisis is such that Iceland is in foreign debt ten times its GDP. Just imagine the madness on part of the governments, sheer madness. The mad rush for conspicuous consumption and show off tendencies destroys not only individuals but Nations also.

Well tide would pass after some time, but leave the scares of devastation in the psyche of millions of people across the Nations. Questions that should be asked now, that whose money is being ejected into the economy? Did the governments take mandate for this package? After all why the tax payer’s money would be pumped into the financial markets to save it from, what they call financial tsunami, a problem or a crime which someone else have created. Is it a bailout package for Nation of or bailing out some economic offenders? Does it not sound unjustifiable that, why innocent citizen pay for the offence he or she has not committed? Will it not set in a new but dangerous trend in the economy of the world? 

IMPACT ON INDIA- Man Mohan Singh said in Marseilles that Indian economy is not immune to world economic meltdown, but ours is strong fundamentals. Chidambaram also is in resonance with the PM. But the fear is visible. Market broke a news, though not confirmed by the authorities that ICICI Bank is facing acute ‘liquidity crunch’ and suddenly share showed the signs by being plunged. The Bank authorities were quick to comment, ‘we are having enough of liquid with us’. In India, we believe in reading in between the lines, when govt say they have the majority, we believe that there is serious problem with the govt, or else why should it shout like this. This is what seems to have had happened with this Bank, because last Friday its share fell and fell sharply. 

REASONS WHY INDIA WOULD GET AFFECTED-

1. With the globalised economy, the ripples in one part of the world are bound to create hiccups in other parts. The world is a global village and therefore; the Indian economy cannot remain immune to what it is happening in the other parts of the world.

2. IT-BPO sector of Indian Industry has emerged like world giants. Infosys, Wipro, TCS, HCL etc have made a room for themselves in the world market. Hyderabad, Gurgaon, Bangalore, Pune and a host of such cities have gradually metamorphosed into cyber cities. These cities are fast becoming out sourcing centres. According to one estimate, about 15% of the IT professionals in USA come from India. The cutting of jobs in this sector in Europe and America would have disastrous consequences in India also. IT and BPO are likely to be hit hard. ‘Guys on the bench’ are getting ‘pink slip’ by many MNCs in cities like Delhi, NOIDA, Bangalore, Pune, Hyderabad etc. India is becoming an attractive market of ‘soft ware outsourcing’ for many foreign companies. They get cheaper but decisively better ‘software guys’ to word quickly for them. IT-BPO revolution began in India somewhere in early 2000 and gradually changed the Indian face abroad. Over a period of time, the export of this sector increased by 33.5% amounting to 8.4 b USD in 2007-07, it is expected to reach 10-11 b USD by the end of 2007-08. According to National Association of Software and services Companies (NASSCOM), the number of employees working in BPO-IT sector in India is under-

Year Number of employees(IT-BPO)

2003-04 2,16,000

2004-05 3,16,000

2005-06 4,15,000

2006-07 5,53,000

The current figure is certainly much more and is increasing day by day. They were getting salaries worth 1 b USD during the year before last year and naturally it has increase substantially in 2008-09. According to one estimate, about 82% of US software companies prefer Indian software professionals for obvious reasons. The humungous fall in Wall Street leading to unprecedented panic and catastrophic consequences in American industries would certainly affect this boom. The exact figures would come only when this financial tsunami is over. Nonetheless, it would certainly mean job cuts and increase in unemployment rate.

3. Trade and commerce- USA is the largest trading partner of India. Share of USA in India’s export is 17%, and its monetary value is more than 100 billion USD. This economic meltdown would certainly adversely affect India’s export in general and export to USA in particular. According to Federation of Exporters Association (FOE), the exports from India are already showing signs of decline due to this slowdown syndrome. Figures suggest that it is experiencing a decline of more than 15%. According to one estimate, the NRIs remittances in India during 2004-05 had been about 22 b USD, out of which 60% comes from Europe and North America and rest 40% from Middle East. These remittances are definitely going to decelerate, if not stopped; contributing to depletion of FOREX which had reached all time high in recent years. The remittances coming into a country is a healthy sign and no country however strong it may be, would like it to grow substantially. If we look at this figure of inflow of foreign exchange flow into countries during three to four years ago, we can imagine that why and how our FOREX has swelled to nearly 

200 Billion USD. 

Countries FOREX( from IT-BPO)

India 21.7 billion USD

China 21.3 billion USD

Mexico 18.1 billion USD

France 12 billion USD

Philippines 12 billion USD

Pakistan 3.9 billion USD

Bangladesh 3.4 billion USD

4. This economic slowdown is not going to affect much more immediately to our overall economy but the consequential effect would manifest in deceleration of pace of economic after sometime. The Deputy Chairman of Planning Commission, Montek Singh has also apprehended that the growth rate would slow down to 7.5 and 8%. The industry and other sectors are also witnessing the same down ward trend. In fact Industrial growth slumps to 1.3%. There are some more perturbing figures in economic arena, but these after effects are not going to create situation like what it is in Europe or America.

5. The crash in stock market is very much perceptible. The BSE and NSE Sensex have fallen from more than 21000 in January to less than 11000 in September, 2008, registering a fall of more than 50%. As mentioned in earlier paragraphs, this fall has led to panic in financial markets. India stands at different platform vis-a-vis other economies following American type policy of lasez fairre in the sense that ours not a totally unregulated economy, even after we have eschewed the Nehruvian socialist economy in early 90s. As a matter fact, the total free and unbridled type of economy has resulted into this ‘financial catastrophe’. 

6. Stock markets constitute 15% of the total capital in India, therefore; this tsunami in the financial market worldwide is not going to be a contagion for all financial institutions including Banks. But if the situation is not handled with ‘utmost care’ it would infect ours also with greater degree of damage. 

WHY INDIA STANDS AT DIFFERENT FOOTING AS COMPARED WITH EUROPE AND AMERICA- 

When financial turmoil hit American followed by European economy, the anxiety in India was natural. The government acted swiftly as it should have acted. First thing which is very important under such situation is restoration of confidence and prevention of rumour mongering. Both PM and FM made calculated and balanced statements which was first right step in right direction. But unfortunately the rumour mongering has not yet stopped. Ours is not an unbridled and unregulated financial stock market. Moreover, the percentage of financial markets in the economy is 10-15% which is meager as compared to other sectors of the economy. Here are some constituents which make our economy different from many of others. Well, it would be a wrong and utopian proposition, therefore; only an etourdi can say India shall remain totally immune from this financial meltdown, but certainly the impact will never be of that magnitude as they are in the economies of laisez fairre. Reasons are obvious-

1- Indian economy is still agricultural based and the contribution of agriculture to GDP in India is decisively higher than any other countries in the world.

Countries % in GDP

INDIA 20-24

CHINA 13-14

BRAZIL 8-9

SPAIN 4-4.5

AUSTRALIA 3.8

MEXICO 4

S.KOREA 3.3

CANADA 2.2

FRANCE 1.0

ITALY 2.1

JAPAN 1.1

USA 1.0

GERMANY 0.9

UK 0.5

HONKONG 0.1

Thus it is clear that agriculture still contributes quarter of the GDP, rest 50% and 25% are contributed by services sector and industry sector respectively. This is perhaps one reason why PM, FM and RBI say that the fundamentals of our economy are strong. The upheavals in the financial markets have very little to do with rural economy.

2- Indian financial market especially Banks have always been under RBI scanner, even during normal times.

Banks % share

Public sector Banks 75%

Private Banks 18.2%

Foreign Banks 6.5%

Thus it is clear the role of private Banks as well as foreign Banks vis-à-vis Indian economy is very limited. Even the lending by these Banks has been dismal. In fact CD ratio of such Banks speaks that they are interested in deposits and not in lending. The 196 different Regional Rural Banks (RRBs) play a vital role in rural economy of India would remain by and large unaffected owing to this depression. We have a chain of banking system based still on concept of welfareism rather than profitism. The Urban (52) and State cooperative Banks (16) have been playing significant roles in making ‘fundamental our economy’ strong. We have had developed ‘a scientific fiscal mechanism of consistent monitoring’ system for our banking system which would keep our economy safe in extenso, when the world’s economy is in extremis.

3- Post offices are poor man’s Bank in India, started in 1850s still plays the role of ‘unsung heroes’ in capillaries of economy. The chain of more than 1, 50,000 post offices in India contributed to about 49.37% in overall revenues in 2004-05. What a significant role they are playing. Common men, pensioners and small domestic savings still prefer post offices for one simple reason, the high rates of interest rates in comparison with any other financial institutions. The government and RBI therefore; must nota bene on post offices and should not be swayed by media hypes on this issue. After all the 60,000 crore money that has been injected into the market, is the hard earned money of millions of tax payers, and why and how would they pay for economic offence, they never committed?

4- We have had developed an ‘iron jacket of social security system’ for the people sitting at fence, a step which Roosevelt took after ‘the great depression of 1930s’ in form of ‘ new deal’ and which many developed nation are taking as an emergency measures. Welfarism for us is a mission, for them it is fiction. Ours is a ‘democracy with humane face’ and not an ‘export brand democracy’, thus, it is a sermon also for those who want government to ‘throttle the accelerator of liberalization’ with much more intensity. It would cause, what economists say ‘overheating of economy’, bravo! We would certainly win the race. Don’t let loose the heart and patience.