Indian Economy – Getting into worst ever recession ??
It is high time , we acted fast by reducing fuel prices, drastically reducing loan rates and take all possible measures to ease out of a severe recession. Every where, there is a job loss, loss of contract, shrinking consumer spends , production cuts, halting growth plans, adding to this , the recent terror strikes have crippled our already bad travel and aviation sector. We need to convince the consumer that all these steps would be long term. Trust me, we are headed towards a severe recession that will blow out the India story. We don’t need a nuclear deal or a moon mission as a priority today, what We need is ,to keep our feet on our ground. India needs to be pragmatic. This road to recession can be a good turning point for the Indian Economy if used as an opportunity
Why is Indian economy in recession? Indian economy was known as the most intriguing economy for the last three years. There was a lot of hype and hoopla created around the same, everyone wanted to ride the booming India. Some called it the ‘rise of the east’ or ‘a billion under-served customers’. It was the country no one wanted to miss. What happened? What went wrong and why at all?
Firstly, a few things led to a sudden hype. Rise of Infosys and Wipro’s, TATA Tetley acquisition, Arcelor Mittal takeover, Indra Nooyi taking over PepsiCo as CEO, Arun Sarin took over Vodafone etc… This was backed by a lot of media coverage.
Secondly, the triumvirate of Manmohan Singh , P. Chidambaram & Montek Singh talking of a double digit growth excited a lot enthusiasm of politically connected ( and not so politically connected ) business groups to enter into ‘businesses of future’ like infrastructure , power, retail etc… This was based on ‘Big Talk’ of the triumvirate. We all know how many people pumped in money at unrealistic valuations and market was heated up beyond logic, banks were also enjoying the party, share market was expanding like a balloon, manpower was charging anything and still jumping for tempting offers, retail was spotting everywhere. Result: competition became suicidal. Money got pumped into real estate and supply increased and the prices soared. Brands started fighting for space and not profits. Finally, reality was surfacing; growth was not double digits; which the triumvirate shouted for three years. We saw profits were not as projected, corporates were missing numbers, shutting the outlets and man power layoffs. Just forcing Jet airways to take back air hostesses will not cover the reality…………how unfortunate!!!
Thirdly, the ‘Big consulting majors’ were talking in 2007 -8 about the multi-billion dollar markets suddenly growing three fold or four fold by 2012-15. How stupid of CEO’s who believed these news releases of these so called ‘big consulting majors’ and spent millions to buy their reports & finally presented their boards with these rosy projections and raised funds. Now they are shying about the current share prices and valuations (let’s not even talk about growth achievements versus plan or the crazy profits numbers!!!)
All the three factors basically did no good but just created a ‘sexy story’ about a nation like India, where more than 70 % people don’t have access to basic healthcare, only 3 % dabble in stock markets, only 10 towns can boast of a retail revolution, has 36 billionaires and more than 800 million living on about a dollar a day.
Let’s evaluate a little more ……..When people talked of India in 2007 they talked about big IT giants , call centre’s high paying jobs to teen agers, overseas acquisitions of TATA’s & Mittal’s, Mumbai becoming like Shanghai, Big malls coming , dollars flowing as FDI, Big brands coming to India , MNC’s coming to India, ballooning stock markets, BPO’s multi million outsourcing contracts & the great retail revolution. Now with US / Europe in recession and may be, with Barack taking over as the next US President. India will have to take a big hit. We just saw the first wave of negative effects of the US Financial market collapse. India’s stock market crashed almost to a third of its high. With India’s IT / BPO shying and taking to lay off’s, we know the real estate sector would be hit as the entire 2 BHK ( Two bed room , hall & Kitchen ) flat story was built on these young ‘Ripe aged’ employees buying flats at the age of 25-30. Splurging on mobiles and white goods by credit cards …………all this is over (believe me!!)
The hype was more of a story of 36 billionaires , Infosys, TATA, Arcelor, stock market manipulations , FDI and not the story of economic development & and the 800 million population. What we see happening was a foregone conclusion. It was not a ‘bubbling economy’ but an ‘economic bubble’. And it got burst
When the banks started hiring recovery agents, it was the start of the default / delinquency crises (credit card delinquency has gone up to as high as 14 %). Loan defaults would follow shortly and this will be a big blow to the banking / loan system. When the government has to get in to pump in money or the so called confidence, It’s a sure shot sign of crisis or recession or both.
I wish that congress leaders should have thought well before announcing a Rs.60000 crore write off for farmers. This has put a pressure on banks and it will manifest in banking / loan crises. Now imagine, I am a farmer with an Rs.10000 loan for my sister’s marriage or due to a crop failure (trust me, farmers crisis has come due to rise in social costs as much as crop failure). If my loan was waived off what it did to me? Firstly, it gave me nothing to raise a healthy crop and earn for the season so my problem would be standing as such on my head. Has it given me seeds or irrigation which i needed? I could have earned and paid for the loans in the next few years (a moratorium on payments & Interest was more than enough). Moreover, it has set a precedent for me not to pay my loans and hope for future waivers. When politics drives finance, chaos is the only outcome.
Take a cue from USA . They have pumped 700 billion dollars ( India cannot think of even a tenth of this amount in the case of a crises !!! ). This pumping of funds actually helped the banking system in the US and not the economy as people have been made to believe in !
We can knock off any crises if India develops an indigenous model for growth in which technology only becomes the enabler and not the key driver or determinant. What i am pointing is that, we need not depend on FDI totally. When FDI came in, we were roaming the whole world and shouting about it. Now that these economies are under crises, they will take care of their home first, and may even exit from our country as we have seen in the case of FII’s exiting the stock market and leading to a sudden crash. We must have started our economy with 75 % dependence on domestic and 25 % on foreign fund generation besides a host of infrastructure & ground level measures. We need a ‘self reliant India growth model’ and not a USA – Europe dependent-driven growth model. Hope the policy makers will learn from the crises & take steps to correct it.
Now a day’s the most talked about line from the ruling politicians is, that India is fundamentally strong economy. Which ‘Fundamentals’ are they referring to ? Our consumer sentiment is low, stock markets have crashed, industrial production is low , inflation is high, uncertainty is looming over every corporate , retrenchment is happening , rupee is weak against the dollar, farmers that constitute 65-70 % of the population are committing suicides , IT & BPO industry is hit hard due to US –Europe recession, terrorism and lawlessness is rampant. I am still trying to get which fundaments appear to be strong !!! Is it the large suffering population that is being referred to ?
Coming to the most happening sector – The great Indian retail story : I see some retailers having burnt their fingers in metros , now are planning of moving to class II & III towns for the next cycle of growth. Let me express boldly, that this will be a big loss making proposition. In towns like Mumbai and Gurgaon, retailers are having a tough time, how come they will survive in smaller towns with more ‘service class’ & ‘Small time traders’ people. At least , bigger towns have industries and other corporates to support higher spending opportunities. Some learned Advisors have informed these retailers that 70 % of India lives in rural areas so rural India is a bigger market than urban India (calculating that rural India with USD 530 income per capita is three times the population of urban India with the per capita income of USD 1200). What an ‘unintelligent logic’. The 530 USD that the rural India earns is not even enough to spend on basics, unlike urbanites who have the basics already and can afford to spend on the new class of products which supports the modern retail formats. It is analogous to three boys of seven years marrying a girl of eighteen years (3 boys x 7 years = 21 Years, marriageable age!!!). Intelligent logic isn’t!!! That’s what our great retailers are trying to do . Only smart ones are Pantaloon and Wal-mart. Rest all are smart looking idiots !!!
Retailers must realise that they are making investments for 2012-15 market projections. The figures of these projections are not even validated. But the cash burnout is happening now. Imagine this , rentals going up by 5 % every year , salaries by 20-30 % , cash burnout for new openings , increasing offering –SKU’s, reducing margins to attract customers or wash off old inventory. However can a retailer survive ? Adding to this , move to class II towns!!!
Just to make a note that if in towns like Panvel in Navi Mumbai, the two supermarkets owned by Foodland have closed within a year due to opening of ‘MORE’ supermarkets, D’mart & Reliance Fresh stores, how can small kirana stores survive? If i don’t go wrong, even ‘More’ & Reliance will have to shut down in the times to come in the area or make perpetual losses . So the retail story in its current form is not a lasting one. But the lessons are to be learnt . One thing that has happened in India which is totally wrong is that, we have tried to CCP (cut, copy and paste) foreign retailers. But we have missed to note the most important point , that foreign retailers were pretty slow in the first ten years in their country. Even Mukesh Ambani made a strategic mistake; he announced 5 billion dollar investment in retail only to face the back lash from local traders. No one expected seasoned businesses houses to make such tall claims ….This gives us a clear feeling that Indians are unaware and unprepared for the hype that has been created by the media and neither are they guided by the realities . I would call Wal-Mart the smartest retailer in India. They have just done a retail tie up in India without using its brand name . So that the Indian partner has the expense & experience and Wal-mart has the learning’s. Moreover, their growth plans are practical. Just 15 stores now compared to 600 + stores of Reliance and Birla’s. What if the Ambani’s & Birla’s want to change the strategy or make changes backwards because of their learning’s?? It is easier to correct and make changes in 15 stores of Wal-Mart then 600+ stores of Reliance or Birla’s.
We must note:
85 % of the rural India does not have the power to consume very much at the prices that currently prevail in the market.
30 % of urban India constitutes 75 % of the GDP.
70 % of the rural India constitutes 23 % of GDP
According to the Central Statistical organization, in 2001, 48 % of the rural GDP was agricultural.
In 2001, the NDP contributors were: agriculture 46 % , industry 21 % and services 33 %.
If India needs to grow sustainably, we need to make a prudent choice between education, vocational training and SSI. Needless to mention that, India’s growth will be driven by creating more jobs in lowest rungs of the society. They will build the real consumption led growth for a ‘Shining India’. The earlier, the better.
India today is in a recession and we must accept the fact. By closing our eyes the problems will still remain. We must build growth models not based on dollars , stock markets , urban India but go in for holistic models of growth that suit the local conditions and requirements , are broad based for all sections of society and industry , and just don’t reflect isolated figures .
Rajendra Pratap Gupta
President
Countryfirst
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US economy, Recession , terrorism, Economic fundamentals, Barack Obama, Recession in Indian economy, Terrorism , Curruption.
A Common Man's View Point (Blog) 
Well said… Great information, keep up the great work!
I accidentally saw your write-up and read it once, only. Though economics is not my field of activity, I realised years ago, this is one field that every one claiming to be educated should be conscious of, just as about ecology and environment – the former embodying resourcefulness and the latter causing concerns ov improper development!
Yes India is in recession. The negative things happening here seem to have similarities with the 1930-1940 and 1950-1965 USA in many ways. Top heavy and bottom weak which lead them towards shortcuts like crime. Heavy consumption, conspicuous at that, driving every one towards easy money, corruption of all sorts. True instead of training on a large scale in vocations and strengthening higher education towards genuine high standards, reverse is followed. We hear of Excellence, knowldge power, world class, knowledge society etc every day because they ae vanishing faster than realised. Only islands and insular in content by forces of power politics exist. The West never loosened its highest standards in their institutions, come what may. So they fall; they rise! We are unlikely to be like them except in day dreams!
The general ethos now is to save and not spend. Accummulate gold and silver, earn as much cash and stockpile. There is fear in many places.
India’sgrowth rate is artificial, generated by the West and its outsoucing, to a considerable extent. Now retrenchment, salary cuts, etc have started. Most of the Foreign direct investment has come from NRIs and it is in Real Estate which should have never been encouraged.
The Keynesian path should not have been abandoned but improved on ecological principles – limited development in all niches, not destrying the resourcefulness of the system, utilising replenishable resources, microlevel, microfinancing, etc. Yhere was one such model in India , 30 years ago, supported by McNamara through his [local] Income generation Principle. This was in AP by an assistant of RM, B P Rao [ Bhagavatula Charitable Trust, at Visakhapatnam, AP. If this was follwedalmost every ecosystem would have seen development, but different from each other! But there is no big money; no cances for corruption; and needed very well qualified people with a social conscious ness.
India is gliding, galloping downwards.
After the recent havoc in Bombay, the city and the Indian elite woke up because upper classes are the victims! So much rhetoric, platitudes, polemics and what not ! The basic issue none dared to say : It is the Muslim Indians[ They want to label them as Indian Muslims] who provided, are providing and will continue to do so, shelters, communications, informations, protection, succour to the initially foreign, now local too, militants from 1971 and not after Babri Masjid Episode. There are 5000 muslims from Pakistan overstaying in India, most in Hyderabad- we will not arrest and send them back! Until the Muslim Indians revolt against the Pakistani actions, this will continue. There was a silence to feeble noises about Bombay for 10 DAYS, but yesterday, thousands of “Indian Muslims” protested and courted arrested in every state and town of India, to mark the Anniversary of Babri Masjid Demolition, over a decade ago.
Such conduct of 140 million reluctant citizens is a permanant drag on Indian economy. We are bound to go from recession to depression. Of course there is a saving grace – Power of Knowledge. Even this is getting paralysed every day, except the vocal chords. Pitroda must be a sad man. NKC’s recommendations willalso be sybverted for personal profits. The last hope to take a society, a country across hurdeles like recession, depression, protection of people and the country is fast vanishing.
Thank upu for patience if you care to read this in full.