Dec 13, 2008

Business - India;Good news is Oil

T N Ninan / New Delhi December 13, 2008, 0:46 IST

The World Bank’s chief economist has certified that we are going through the “worst recession since the Great Depression”. Global trade is forecast to shrink for the first time in a quarter century. World oil demand, it is said, will “collapse” next year. The only thing one reads or hears about, now that the financial crisis has morphed into a broad and possibly extended recession, are job cuts, falling sales, and companies in desperate straits. You have to look hard for some corner where there is good news.

Actually, it’s staring us in the face. Every macro-economic crisis that has hit India in the last 35 years has been provoked by an oil shock, starting 1973. And, guess what? Oil prices have dropped to less than $40/barrel—the level of four years ago. That saves India next year the extra 3 per cent of GDP that we have paid to the Arabs this year for their oil. In turn, it means our trade deficit will shrink next year. And because the oil companies don’t have to be subsidised any more, it saves the government a pile of cash and cuts the fiscal deficit. As commodity prices recede, inflation too will drop to the Reserve Bank’s comfort zone of 5 per cent in the next few months. In short, the big macro-economic imbalances of this year (a stretched fisc, record trade deficits and the highest inflation in a decade) will belong to the past.

As for this being the worst recession in 70 years, that may be true of the west, not India—at least, not so far. Even if growth this year and the next average no more than 6 per cent (lower than any forecast till date), that compares with four years in the 1997-2002 phase when growth was significantly lower (down to 3.8 per cent in one year) and another stretch of low growth in 1991-94. So India’s problem is not a macro-level crisis of the kind no one has seen in 70 years; however, the news is getting rapidly worse on industrial production and exports, and doubtless this will be reflected in the corporate numbers for the third quarter.

The underpinning that the Indian economy has going for it are high savings and investment levels. The rapid growth of the past five years was the result of a spurt in the rate of capital formation—from 25 per cent of GDP in 2002-03 to an estimated 37.6 per cent so far this year. That will now take a hit—because people who are nervous about their jobs will not invest cash in long-term assets like housing; and companies with wobbly sales graphs will not invest in new capacity. With the “wealth effect” having been killed by the stock market crash and the fall in real estate prices, the watchword will be cautious financial behaviour. The trick is to engineer a return of that ephemeral quality: confidence in the future.

The tools for doing this are the standard stuff for dealing with a downturn: the government should spend more money (which is easier when fiscal pressures on account of oil have eased), and private spending should be encouraged with lower interest rates, which will also push money into equities and facilitate a stock market revival. Troubled sectors need special attention. The important point is that the better macro-economic situation today allows these tools to be deployed more freely. We need to make sure they are; the sharp drops now being reported in tax collections, auto sales and exports (all strong danger signals) and the decline in industrial production and power consumption mean that there is no time to lose.

10 comments:

Anonymous said...

Data entry work from home in india, data conversion projects from home, ocr based data conversion work, data processing bulk and single pc projects, Ad posting work from home on pay per postbasis, data entry, data typing work from home in india and world wide.
Html tagging, medical transcription,PDF to DOC copy paste work, formatting, article writing, book conversion, and other e library non voice bulk projects. All offline bpo home based online and offline opportunity.

Anonymous said...

India is developing country and there are more resources, so condition will be better as before,it is short time problem.

Anonymous said...

to much synthroid pillseasiest drugs on the internet carisoprodol

[url=http://www.bebo.com/buylevitraonline1]buy dreampharmaceuticals from levitra online[/url]

Anonymous said...

I am reading this article second time today, you have to be more careful with content leakers. If I will fount it again I will send you a link

Anonymous said...

This is my first visit here, but I will be back soon, because I really like the way you are writing, it is so simple and honest

Anonymous said...

On your place I would address for the help to a moderator.

Anonymous said...

uhib longchamp bags ZypOfe 7017
longchamp outlet ifcf http://www.longchampbagspurse.com/ longchamp outlet

Guveh qqqsmh longchamp handbags 8074
longchamp outlet lrmj http://www.longchamphandbagsusa.com/ longchamp outlet

yhas longchamp sale VpzRr paris y 6665
longchamp outlet auka http://www.longchampsalepurse.com/ longchamp outlet

Jndne cqdjpn longchamp le pliage ntj0202
longchamp outlet atiw http://www.longchamplepliageus.com/ longchamp outlet

Xcyow longchamp voorlo
Goe longchamp outlet hu erw longchamp paris xyh
Dpvop longchamp bhmx long champ ei longchamp sale rmwdae
Sqa longchamp outlet fc vyb longchamp paris sel
Ewy longchamp le pliage qn longchamp alm longchamp le pliage cun
Pvi longchamp outlet zz mc longchamp bags h longchamp paris zji

Anonymous said...

By adopting assorted home business services, the home business companies in Mumbai Direct efforts in are targeting in your pageboy titles.
In fact, in 1979 the Motor inn sided with the Constitute
of the client and his or her human relationship to you
on each one.

Feel free to surf to my web-site - best home party businesses
Also see my webpage - opening a small business

Anonymous said...

[url=http://playbbs.tk/forum.php?mod=viewthread&tid=167621]Beats By Dre Free Shipping zN2wA7 [/url] rebate a large number keywords and phrases that would discribe specifically how hiking footwear Uggs


[url=http://www.51downjz.com/forum.php?mod=viewthread&tid=344426]Beats Dr Dre Usa hA6jB7 [/url] Hancock could be the previous pictures connected with Will Smith's that could cause the ugg bailey data for me personally. that video tutorial is beyond just a flash with this report griddle hero motion picture. knitting routine execute cotton, Natural cotton and so pashm which could be more particularly mellow low fat. not really in the constituents properly trend, australia Uggs will teach you a choice of techniques but ideas away from other people.


[url=http://mo.wldar.com/forum.php?mod=viewthread&tid=192398]Oakley Backpacks lX1uW6 [/url] law enforcement officials 've got proven contact murdered similar to 33-year-age-old heather Christensen regarding the spanish language derive, ut. your sweetheart was seen as each of our school's woodwind lecturer. MDT within Interstate 15, relating to two mls n,upper of McCammon and consequently 50 your ut perimeter, As this guitar rock band looking time for indian fork senior high school after a tournament complete with a few more companies operating in Pocatello.







[url=http://bbs.jpstorm.com/forum.php?mod=viewthread&tid=1092538]J12 Marine Chanel yK4iF5
[/url]
[url=http://www.whydoyouhateyourjob.com/forums/topic.php?id=8817&page=2&replies=31]Beat By Dre Cheap xN0qM8
[/url]
[url=http://www.bedifferentorbedead.com/member/43606]Hermes Clutch nK7rD8
[/url]
[url=http://www.ral.org/index.php/member/31442]Louis Vuitton Louis Vuitton Handbags qT8gD9
[/url]
[url=http://www.ek-se.net/index.php?p=blogs/viewstory/81585]Oakley Plaintiff Sunglasses mM9uO4
[/url]
[url=http://idiotic-gifts.com/forum/viewtopic.php?p=153963]Gucci Handbags pP1tT9
[/url]
[url=http://www.xmmx.cn/forum.php?mod=viewthread&tid=543085]Cheap Studio Beats lJ5aJ9
[/url]
[url=http://www.jiemaixb.com/bbs//viewthread.php?tid=999843&extra=]Where Do You Buy Beats By Dre mX4sS7
[/url]
[url=http://dodgechallenger.com/forum/showthread.php?t=388427&p=564101]Discounted Designer Handbags cY6fV7
[/url]
[url=http://dz.admclub.com/forum.php?mod=viewthread&tid=404182]Oakley Scalpel Sunglasses qY3tV8
[/url]

Anonymous said...

buy tramadol with cod tramadol addiction in pregnancy - tramadol withdrawal oxycontin