|Finally 2008 is over. With two stimulus packages behind us, the
government firmly stated there was no fiscal space for anything more. This
admission is in a way a relief because it shows that there is some recognition
of the need for curbs on spending and tax cuts. There was also the stated
emphasis on ?improving the implementation of projects?. But don?t expect much
from this, at best we will see another committee or group of ministers.
The opportunity lies in tightening implementation, cleaning up
rules and procedures, removing contracting hurdles, setting up a real-time
monitoring mechanism, and improving cross-ministerial interaction. All of this
can be achieved without new bills and policies. But this government preferred
to use monetary and fiscal means to circumvent implementation hurdles. The
economist politicians perhaps know the pointlessness of using the hammer of
fiscal and monetary policy to tighten the microscopic nuts and bolts of
implementation. But the poor guys are unable to do more; at some point in the
near future the real politicians will have to once again run the economy ? only
they can manage on-the-ground reforms.
Going ahead, the outlook shows that while the broad trend is one of
downward momentum, some sectors like infrastructure, agriculture show promise.
Though data are not in, agri input suppliers, and rural marketers are reporting
a boom in sales ? likely due to a good crop combined with higher prices.
Infrastructure sector will continue to improve steadily going by the
allocations and the announcements. However, there is some time lag and a few
months may pass before we can hope to declare an infrastructure sector boom.
Again, big business is likely to recover much faster than the small
sector, which will need significant recourse to credit to get back into
business. Small businesses are reporting a steep fall in their working capital
and access to credit, and also a sharp rise in payments due from large
companies. This is even more so in the case of services oriented small
businesses. Expect extremely poor times ahead for this segment.
What is also clear is that by the second half of 2009, there will
an overall improvement. Though another crash in the US housing market cannot be
completly ruled out, it is unlikely given the large give-aways disguised as
stimulus packages in the western countries.
For once we join the leftists in saying ?do not copy the west?. We
have all seen the great opportunities that economic freedom, devoid of fund
allocation by governments, can create. The markets are now in the self
correction mode, and the growth slowdown is a symptom of this. The bubbles in
the real estate and high end salaries need to subside if India has to emerge a
stronger economy. Indian and international governments have stopped the assets
markets from crashing further and saved many large private firms. There is no
need to save any more.
In other words, it is now the right time to get over our collective
pessimism (or should we call it the slowdown syndrome?)
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