|Slowdown continues, but economy
appears to be getting out of the depths of pessimism it had gotten into in the
last few weeks. Though international conditions remain quite bleak, India has
managed to hold its own in the last few weeks, and has not collapsed like many
predicted. The worst is of course not over yet, but there our economy has shown
a lot of spine.
The same cannot be said of much of the organized large business,
which wants greater and greater handouts. Let’s put things in perspective here.
A number of companies and business groups had over-extended themselves, in the
belief that low interest rate – easy access to funds combination would continue
for a while. When this did not materialize on account of international forces
and RBI action, they got into trouble. Since the economy, to some extent does
depend upon the performance of the corporate sector, the government can not be
faulted for some of the corrective measures. But the fact remains, recent
government actions are meant to support the corporate sector, and the corporate
sector wants the people of India to pay much more for its sins.
It has been argued that the interest rate regime created by the
RBI was too high, and the controls put in place by the Finance ministry were
impacting the corporate sector and economy adversely in the era of international
recession. These obviously needed to be relaxed. As long as the government
sticks to doing that, it is fine. But we need to guard against measures that
provide additional support. Net net, it is important to limit real-estate and
wage bubbles for sustained and equitable long term growth.
There is too much uncertainty this year to give a point estimate
for growth, but most people aren’t satisfied with our estimated range of
5.5-7.5%. Actually, it is time that people planned for differing
scenarios…things could get worse, they could also get better. The fall in crude
was unprecedented and the flip side has been global recession and the
accompanying dollar rise.
Meanwhile, there are many positives and the overwhelming gloom and
doom stories being painted are one sided. Agri is of course the star, with
record harvest being now predicted - despite what the government data said a
couple of months back. Also with higher minimum support prices, farm incomes
will give that much-needed support for aggregate demand. Telecom is still going
strong, if a rural push is maintained; this will have valuable spin-offs in
raising demand. While luxurious penthouses are thankfully out, the low cost 1
BHK is back in fashion again, as builders are pushed to satisfy the markets with
lower margins. Healthcare continues to grow rapidly, Education – among the
largest sectors – is changing in structure and scale rapidly, and the electorate
is rewarding politicians who serve the masses.
All in all despite terror, politicians, corporate lobbying,
international pressures, India moves along, thank you very much.