Friday, May 15, 2009

Lengthening Shadows Of Global Recession

Weekly Editorial

THE country is paying a very high cost for the state of denial of both the Congress and the BJP on the impact of the global economic recession. Mired as they are in the neo-liberal mindset, both are living in an illusion that the current recession is a case of the normal rise and fall of the capitalist business cycle. The current recession, as we had repeatedly shown in these columns, is caused by the structural inadequacies of the capitalist system and is, therefore, a crisis of capitalism and not due to lack of or faulty regulations or excessive greed by a few captains of international finance.

World Bank's Global Economic Prospects (GEP), 2009 says: “What began six months ago with a massive de-leveraging in financial markets has turned into one of the sharpest global economic contradictions in modern history”. It continues to say: “Global GDP is expected to contract by 1.7 per cent in 2009 which would be the first decline in world output on record”.

“The deceleration in economic growth in low-and middle income countries as a group is expected to match the deceleration in high-income countries. The developing world is anticipated to see growth fall from 5.8 per cent in 2008 to 2.1 in 2009, a drop of 3.7 percentage points, similar to the fall in high-income economies (drop of 3.7 per cent from 0.7 per cent to minus 3.0 per cent). This highly synchronous growth collapse cannot be solely explained by trade linkages, but illustrates also that developing countries have been directly hit in their domestic economies by the financial crisis. The reversal of capital flows, collapse in stock markets, and in general the deterioration in financing conditions have brought investment growth in the developing countries to a halt, and in many developing countries investment is sharply declining.” (emphasis added)

This is precisely what we had analysed and anticipated in these columns in the past. On this basis, we had argued that unless there is a quantum leap in public investments, domestic demand and employment cannot be shored up. Without this, the economy cannot be stimulated for growth and to prevent the slide to recession. Unfortunately, the Manmohan Singh government has paid little heed to this. We had even stated both on the floor of the parliament and outside that the general elections cannot be used as an excuse to postpone such a decision as this would have damaging and possibly irreversible impact on our economy.

Given their state of denial, this refusal to sharply increase public investments has had its inevitable effect in the sharp drop in our industrial output. India's industrial output dropped to an alarming minus 2.3 per cent growth in March 2009. Of this, the manufacturing sector, which has nearly 80 per cent weightage in the Index of Industrial Production (IIP) fell by a whopping minus 3.3 per cent.

Foreign Direct Investment (FDI) in India has been estimated to have dropped by over 55 per cent – from $4.4 billion in March 2008 to $2 billion in March 2009. India's exports have declined for the seventh consecutive month in April 2009 amounting to a fall of 33 per cent. Similarly, imports contracted by 35 per cent. While this may narrow the trade deficit, the export targets for 2008-09 are much less than even the revised scaling down done by the commerce ministry.

Notwithstanding the bombastic claims made regarding India's GDP growth rates by the government, the GEP has estimated the current growth rate this year to be 5.5 per cent projected to fall to 4 per cent next year. Apart from having a devastating impact on employment (with reports of various agencies indicating that over a crore of jobs have already been lost and many lakhs returning from foreign lands having lost jobs there), this sharp fall in the growth rate has increased the level of poverty in India with the GEP estimating that we are now only ahead of Sub-Saharan Africa in terms of population below the poverty line with over a quarter of Indians “living in extreme poverty” living on less than $1.25 a day. In terms of purchasing power parity, this tallies with the estimation of the Arjun Sengupta Report of 78 per cent of Indians living on less than Rs 20 a day.

Given this reality check of our economic fundamentals, it is clear that the Indian people need to brace themselves for much harder economic conditions in the near future. This can be prevented only by the new government substantially hiking public investment that will generate both employment and demand while, at the same time, building the much needed economic and social infrastructure in the country.


  1. According to me we should take recession as good event, I know that all will disagree with me but I have some explanation on this, we all know that saving money, spending limited money are very much essential points for our financial security but still we don't follow it. Recession is the way by which we all can learn how to save and spend without any tutor for that. For more details on global economic recession refer global economic recession

  2. It is quite naive to argue that the common man has failed to adhere to the conventional wisdom of saving for future: simply he was denied that as a luxury AND, during the heydays of LPG , was advised against his instinct to save by all and sundry here and their masters from the 'wonder land' of UNCLE SAM; THE VOTATRIES OF IMPERIALIST GLOBALISATION HAVE SO DEVISED THE FINANCIAL AND FISCAL POLICIES AS TO LAEVE LITTLE IN HIS HANDS- by 'engineering' price-rise, privatising education and health care besides other public utilities; even public conveniences are not spared.DIVERTING WHAT LITTLE WAS THER WITH THE SALARIED AND OTHER PROFESSIONALS TO THE SHARE MARKETS BY CUTTING THE BANK RATES ON DEPOSITS HAS ALSO HAD ITS TOLL ON THE SAVINGS.

  3. Initially Indian government and the main opposition party BJP were denying that Global recession has hit Indian market, but once it happened then we have seen that how Indian Government came forward and took appropriate steps to counter it. Because of strong fundamentals and right decisions at right time India has done good to counter it.
    CD Rates

  4. Free online Daily update latest news Indian Movies, Current Affair, Bollwood, Hollywood,Cricket, Football and other important topics update.

    Best regards.

  5. well fdi had dropped a lot during the recession period.. fund inflows had reduced to a minimum. as u can remember it was the time when the indian markets were worst hit.. but it is recovering at present and has come to an appreciable level.. the Indian markets are booming and everybody has a bullish opinion...