Depression 2008: Review of the Economy 2008-09 in India by Economic Advisory Council
26 October 2009
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INTRODUCTION
I remember that it was the mid of September 2008 when the clamorous news regarding the economic turbulence, emerging from US and encompassing the European countries, were capturing big space in the international media. Indian economists, government, leaders and even media were silent on the issue of apprehending the turmoil’s transition to Indian economy. They seemed not worried about the predicament prevailing abroad beyond Indian boundaries despite their being well aware of the economic contagium and the economic contagiousness among world economies especially in this globalization era. They were perhaps over confident on account of the rising inflation rate and the achieved appreciably high growth rate.
ECONOMIC OUTLOOK 2008
As per the Economic Outlook issued in July 2008, the Economic Advisory Council (EAC) of the Indian Prime Minister was of the view that the Indian economy would be able to grow by 7.7 % in 2008 – 09. At that time, the Council had opined that while a large part of the sub-prime losses had been accounted for, further setbacks were possible in the months to come and conditions were unlikely to stabilize before early 2009. The outcome in the first half of 2008 – 09 was broadly along the lines expected by the Council in July. Not only this, but Finance Minister P. Chidambaram was so confident up to the last week of Oct. 2008 that he did not even slightly hesitate to declare at Sivaganga (Tamilnadu) on Oct. 25 that India would not be hit by recession and it would sustain an 08 % (more than 7.7 % as estimated by the above said EAC in its economic outlook submitted in the month of July) growth rate this year despite the global financial crisis.
CONTRADICTORY STATEMENTS
It took though no longer span of time than mere one month when Mr. Chidambaram accepted the emergence of a temporary slowdown in Indian economy. On 24 November 2008, while briefing the media after the meeting with CEO’s, he said that India must be prepared for a temporary slowdown in its economy because of the global financial meltdown. But, he again commented contrarily on Dec. 16 saying, “India is nowhere near recession”. However he added that Indian economy had been impacted by the global meltdown. Here in this comment Mr. Chidambaram accepted the global meltdown impacting the economy on one hand while, simultaneously, regarded the economy recession devoid on the other. It is worth noted here that Mr. Chdambaram made this statement while being in chair as Finance Minister and the statement came after a number of events like three block-closers observed by Tata Motors, three days week being observed by Ashok Leyland, rapidly falling inflation rate, falling banking rates, dismissal of 2.5 % workforce in Wipro, loss of 65000 jobs in 121 surveyed export oriented units etc. (making the slowdown amply clear) had already come about in Indian economy well before Dec. 16. Moreover, the effect of economic depression, starting from America, Europe and other countries of the world, had become clear in Indian economy, too, up to the month of October. Before the beginning of October a decreasing trend started in the export business, the industrial production index and the revenue of indirect taxes, especially the production tax (excise duty). The GDP also decreased during the second quarter as compared to that in the first quarter of the financial year 2008-09. The total export of the country, in the month of October 2008, remained 12.1 % less than that in October 2007. Industrial production index also observed a 0.4 % decrease in that month. The production tax (excise duty) revenue in October 2008 became 8.7 % less than that in October 2007 and the growth rate of FDP in the second quarter (July to September 2008) was 7.6 % as against 7.9 % in the first quarter. Having felt the incoming of depression, the Government and RBI started taking preventive measures. RBI took steps for bringing the interest rates down and the government provided relief to industries by lowering the rates of production tax. However, the industrial sector felt all the so far taken measures (including the last bailout of Rs 3000 billion on December 09, 2008, too) insufficient and therefore was demanding one more package.
On the other hand, Hindustan, Hindi Daily, Dec.15, 2008, states that contrary to the above Mr. P. Chidambaram, as the finance minister of India, in the meeting of World Economic Forum, refused to accept the presence of depression in Indian economy. I can’t understand why Mr. Chidambaram makes contradicting versions and accepts not the things ingenuously. All the same, I appreciate that by doing so he presents himself as a true Indian politician. Leaving aside the (whatever) disingenuous comments of Mr. Chidambaram, there are but enough grounds for us not only to believe but to prove that Indian economy stands now encompassed well by depression, though because of the global meltdown.
REVIEW OF THE ECONOMY 2008 – 09
Finally the Economic Advisory Council of the Prime Minister of India submitted the second report on the ‘Review of Indian Economy 2008 – 09 on Jan. 23. Executive Summery of the report accepts the impact of global economic and financial crisis in Indian economy when it reads as ‘the direct impact of funding constraints on the investment plans of Indian corporates and hence on growth and job creation, together with the second order effects of this development, coupled with the compression in export markets and the second order effects on this count, are the two principal channels through which the impact of the global financial and economic crisis are being felt in India’. The summery further reads as ‘India and perhaps China, would have a difficult time in the first part of the year, but should be able to show a pickup in growth in the last quarter of 2009, if not earlier’. The Council, vide its said report, expects that in the financial year 2009 – 10, the Indian economy is likely to remain relatively weak in the first quarter (April-June) and slowly pick up thereafter and the economy would show fairly strong recovery in growth in the second half of the fiscal year (Oct 2009 to Mar 2010) assuming some improvement in international economic and financial conditions. Overall, the Council assesses that growth in 2009 – 10 would be between 7.0 and 7.5 % or some what above that, with the first half of the year averaging growth close to 7.0 % and the second half an average growth of close to 7.5 % or higher. The summery reveals that it has been apprehended in the report that the merchandise trade deficit is likely to touch historic highs despite the decline in oil prices. But the Council expects that it is likely to be offset to a large extent by higher net invisible earnings.
As regards to the inflation rate, the report states that WPI inflation peaked at close to 13 per cent in August 2008. Consumer price inflation continued to rise to 11 per cent in October and November due to price increase in primary foodstuff. The Council expects that the WPI inflation rate for manufactured goods is likely to fall to 4 per cent in February and fall further by the end of March 2009 and this falling trend may continue for a few months into the next fiscal year due to the base effect, given that a large part of the price surge happened between March and June of 2008. However, inflation in primary foods is stated to likely remain elevated at near about 8 %. The report also expects that inflation in energy prices will be negative, as will be that in some non-food primary articles like iron ore. Overall the headline WPI inflation rate is likely to go down to near about 4 % by the end of February or the beginning of March, with a potential for more declines after that. CPI inflation will also fall, but the extent of the fall is unlikely to match that for WPI, considering the expected higher rate of food inflation and its larger weight in the consumer price indices.
All the same, the Council is of the view that the present crisis has come upon the Indian economy at a point of time where several of its components are in re
latively strong shape. It opines that Indian enterprises have learnt the hard lessons of the importance of managing business and financial risks, and are thus to that extent in a better position to ride out the storm of this crisis. Indian banks have also gone through a transformational process. Whatever deterioration in asset quality the present crisis brings in its awake, Indian banks today are better prepared to deal with it than at any time in their history. On Jan. 23, 2009, in Singapore, Mr. Om Prakash Bhatt, Chairman, SBI, while speaking on ‘60 years of Indian Republic and future challenges’, also presented the same opinion by saying that Indian banks are safe in the present time of world depression despite here the banks of the world’s big economies are collapsing. He further added that the Indian banks are in a strong position on account of their managerial skill of world level which they had well achieved when doors for foreign banks were opened in Indian economy.
Going through the executive summery of the report, one can conclude that the Council though accepts that the economic crisis (named as Depression 2008) has encompassed Indian economy but it believes the situation to be temporary. Therefore the Council confidently speaks of the Indian economy likely and rather believably to show fairly strong recovery in growth in the second half (Oct 2009 to Mar 2010) of the present fiscal year. The confidence of the Council is based on its belief regarding some improvement in international economic and financial conditions. I don’t agree with the optimistic stand of the Council. Nor I am aware of whether the reason of the Council’s being so optimistic is a political strategy or an economic analysis. Moreover, contrary to the conclusion and the opinion of the Council mentioned in the said summery, some big organizations like World Bank, IMF and National Association of Business Economists (of America), have revealed in their separately carried on surveys that the prices of necessary commodities would go down by up to 23 % in 2009. First time in the last two and a half decades the world may face a decrease in the world growth rate and the trade pool. On the basis of a survey of 185 countries, the World Bank has estimated, in its report titled as World Economic Situation and Prospects that in the first half of 2009 unemployment would be the biggest problem before the world. In addition to this, ILO report entitled The Global Wage Report 2008-09 holds that difficult times lie ahead for the world’s 1.5 billion wage earners. The report further states, “Slow or negative economic growth, combined with highly volatile food and energy prices, will erode the real wages of many workers, particularly the low-wage and poorer households. The middle classes will also be seriously affected”. The report warns that tensions are likely to intensify over wages. Based on the latest IMF growth figures, the ILO forecasts that the global growth in real wages will at best reach 1.1 per cent in 2009, compared to 1.7 per cent in 2008, but wages are expected to decline in a large number of countries, including major economies.
CONCLUSION
Indian economy can’t remain untouched by any economic turmoil in the rest of the world. The present economic slowdown in Indian economy also is an aftermath of the recession prevailing in almost all big economies of the world. Therefore, the conclusions made and inferences drawn by some big organizations like World Bank, IMF, National Association of Business Economists (of America) and ILO on the basis of extended survey and analysis of the world economies are not only applicable to Indian economy but they are believable, too, at least more than those drawn by national agencies like ‘Economic Advisory Council of the Prime Minister of India’ from their own national level surveys. The above said big organizations have not given any indication towards their being expectant regarding start of economic upswing from the third quarter (Sept. to Dec.) of 2009 and onward. Hence the world economic scenario may rather worsen throughout the present fiscal year.
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Help answer the question
What is the Economic impact of a 5 Star Condo Hotel in a major city?
I need to research on how to measure or what would be the economic impact of a 5 Star Condo Hotel development in a city like Fort Lauderdale in Florida, or any other city… I need any kind of study that demonstrates the positive of such a development…. How does it benefit the city and the community? Is there something out there?
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The economic benefit of a pscygiatrist would be that through there knowledge and treatment to some patients they can help these patients to live a normal and healthy life. Therefore, these patients can then go out and be productive in the economics of their country.
The non-economic benefit of a pscyhiatrist is that they are very expensive, therefore taking money out of the system that could have been spent elsewhere.
Economic stimulus payments will be issued according to the last two-digits of the main filer's Social Security number. For joint filers, the payments will go out based on the person listed first on the return. Payments will be made by either direct deposit or paper check, consistent with how people filed their 2007 tax return
i never doubted it for a second having worked for the firm.
The wealth class as you refer to it, are the owners of YouTube. If ever there was a medium to facilitate surveillance of so-called commentary and the thoughts of the masses, YouTube is it. Every word you write and post to this Orwellian apparatus is viewed upon by elites who ultimately monitor thoughts and prevailing sentiment of the proverbial herd. It would be preposterous to think that YouTube would censor their very ownership class elites.
100% SPOT ON ,THE BANKS HAVE NO REGULATION FSA IN THE UK AND SEC IN THE US LET ALL BANKS PENSIONS FUNDS HEDGE FUNDS DEAL DERIVATIVES (OTC) OVER THE COUNTER WITH NO REGS THESE CONTRACTS HAVE COURSED THE HOLE MESS AND AS THE
MARKETS GET WORSE IT WILL ACTIVATE CLAUSES HID IN THE CONTRACTS that WILL COLLAPSE THE HOLE SYSTEM THE DEBT IS UNQUANTIFIABLE THE BANKS CAN NOT ANSWER THE QUESTION HOW MUCH DO YOU OWE AS THE POSITIONS ARE GETTING WORSE ALL THE TIME UNTIL IT ALL COLLAPSES
Wel most economists, regardless of political affiliation, believe that the bailouts are actually a good idea.
One of the reasons most believe that the Great Depression started was because everyone pulled their money out of the banks all at once. This caused a lack of liquidity (cash) in the banks that caused them to horde what cash they had left (those who had any left) and refuse to give credit to businesses.
This shut down the private business sector and no one could afford to provide jobs. However, with the federal protections of our money, there has been less of a run on the banks and they still have some money. And hopefully with the infusion of liquidity they will continue to provide credit to businesses so the businesses can keep going.
However, I personally believe this is the wrong way to go. We must look to the problem that started it in the first place.
I believe that all of our problems can be traced back to the dollar's value dropping; in fact it is at a 16 year low right now. The dollar's value can be traced back to the National Debt, and that can be traced back to the Iraq War.
Bush wanted to fight this war, but did not want to raise the funds (taxes) necessary to pay for it. He had to pay for it somehow, so how did he?
Well, he borrowed the money from other countries. And they were willing to let him have it, but at kind of a high interest rate. This war was supposed to be over in 3-6 months anyway, so what did it matter?
Only thing was, this war is still going on now. We are about to enter our 6th year, well past the 6 months Bush had envisioned and well past the amount he borrowed. But he still refused to raise taxes, so the only other thing he could do was go back to the other countries and borrow more.
And they were still willing to let him have it. But as they saw how much we were borrowing, they began to wonder if we would, or even could, pay them back. They were willing to continue to take the chance, but they wanted to charge even higher interest to account for the risk. Bush had committed himself to this war, so he took it.
This caused a huge rise in the National Debt. The $10 billion a month figure we are told the Iraq War costs is misleading. That is just the basic cost of the war, without the very high interest we are paying on it. And we have been doing it for nearly 6 years, or 72 months. Bush had inherited a $4 trillion National Debt when Clinton left office; it now stands at just over $10.6 trillion. Even though Bush cut all spending except the Iraq War, he was able to spend $1.6 trillion more than all previous 42 Presidents combined.
This caused investors to lose confidence in our ability to pay back the loans, and they lost confidence in the dollar. They quit investing in the dollar and started pulling out funds already appropriated to the dollar. This dropped the value of the dollar way down. And since the dollar is the foundation of our economy, when the dollar faltered so did our economy.
Businesses have to pay more to make the same products. Oil costs more because it is measured in dollars, and when the value dropped that meant it took more dollars to equal the same barrel of oil. That caused much higher transportation costs to get the products to the store. That meant significantly higher prices.
Businesses also had to cut expenses, and the biggest expense they cut was payroll. In other words, they laid off employees.
Employees are also consumers, so with much fewer jobs and higher prices, they had to cut their spending. This caused a drop in the profits of businesses, so they had to cut more jobs. That also scared investors off from investing in businesses, and Wall Street then faltered.
Those employees were also bank lendees. With the loss of jobs and the loss of value to their savings, they started defaulting on their home loans. There is the problem in the housing market, as well as the financial markets.
And with high oil prices and high gas prices, those employees/consumers couldn't afford to buy SUVs and keep them running anymore. SUVs are simply too poor on gas mileage. But up until about 7 months ago, we all wanted them and so that was all the auto industry really made. We abruptly switched our demand to high-gas mileage vehicles, and the auto industry couldn't keep up. There is the problem in the auto industry.
To fix all these problems, we must fix the dollar. The problem is that the bailouts are adding to the National Debt, so they are making the problem worse. They address a symptom, but not the disease.
We must stop spending so much. That means things like welfare; but the truth is that Bush has pared that down about as far as it can go. What we need to cut is our biggest expense, the Iraq War. We also need to quit with the bailouts, as they add on to the expense as well.
Then we still need to raise taxes to pay the National Debt. This will cause investors to regain confidence in the dollar, and re-invest in it again.
The root cause of the problem has to be addressed, otherwise the same problem will appear over and over again. Simple.
We need to understand who we really are first.
If we don;t do that, how can we suggest solutions? The self isn’t there, does not understand itself fully, so to suggest solutions…financial, economic, government etc. is not going to hekp. We have done that for a long time. Are we still waiting for deeper crisis to address this?
do not criticise wealth class economics on this site, you will be censored, this site is the WORST CENSORING EVER TO GAIN ACCESS TO YOUTUBE, youtube should consider closing them down.
so the “bankers have “offered” financial help to Russia n itwas really good to see Mr Putin to tell them what they should do with their money in a polite way do they really think Mr Putin is that stubid he does Not even want to trade in US$ why should he paper money printed by a PRIVATE BANK WITHOUT RESERVES for their benefit they control most of the world’s economy BUT Russia does NOT need them or their worthless money n has enough natural resourses not to need to sell ot die
Condo Hotels are built so that the developer can fund the construction of the hotel with the deposits of the condo purchases.
Hotels give tax revenue of about 10% to a city, so that can be good. Condos provide residents inside the city limits who will buy goods and services, and pay taxes.
Look at: Las Vegas, Dallas (the Ritz, and the W) for direct material.
The north had a huge advantage because it had a Treasury department. They were set up to handle raising funds for the war Also the north started the first income tax to cover expenses of the war, this brought about 20% of the wars cost back to the north. They also had factories to produce items to sell overseas, whereas the south was blockaded , so ships couldn't sail in and out freely to sell her goods. The north also had banks with gold to back bonds and loans it needed for the war.
The south wasn't set up to handle the dept, but offered bonds to be redeemed two years after the end of the war. They had no gold to back these up and besides they made the bonds to expensive for the normal Southerner. The bonds were issued only in 1 million dollar amounts with a 12% interest rate. People couldn't afford then, so they were useless. It took the south 85 years to pay off the loans it occurred during the war. Also it had pensions to pay to soldiers that fought in the war.
it caused other countries in Europe to start revolutions.
there is a quote: "when France sneezes all of Europe gets a cold"
..yes, we are walking, pie-hole predators, so, what solutions do you suggest?
That's a lot of extremely heavy reading and no time in which to do it.
There was a lot going on.
The country was rebounding economically from the Revolutionary War. It had cost them far more money than they'd anticipated and once the war was over, the world's market place turned its back on the fledgling country. They'd just broke from a ruling monarchy and all of the world was ruled by monarchies.
The Articles of Confederation had been written to allow individual states their autonomy and the country was quickly learning that when states are allowed to act as individuals, there is no unity. There was not true federally funded military and the states were not willing to fund and support a combined effort to protect the nation.
So in the Mediterranean, there were pirates preying on U.S. merchant ships and taking hostages. There was no "Navy" to speak of to give them escort. And the country's economy was failing. There was a call to scrap the Articles of Confederation and try again. The Anti-Federalists were opposed to any such rewrite. They were opposed to the notion of reaching out to other countries for help, in doing business and they were opposed to both a strong, centralized federal government and to the abolition of slavery.
Washington and Hamilton (Federalists) sent John Jay to England to negotiate a treaty that would provide U.S. shipping with English naval escort and allow the U.S. to do business with the English. Jay returned home with a treaty. Unfortunately, it weighed so heavily in favor of the English that the Anti-Federalists accused Washington openly of being a traitor. They grew to realize that they needed to reach out to other countries for trade but still viewed the English as the Enemy. Instead, they pushed to do trade with the French who were in the middle of a revolt. They (Jefferson) was willing to turn a blind eye on the excessive and wanton blood shed known as the Reign of Terror. He'd spent most of his teen years in France working as a secretary and had grown to love the French which may have clouded his vision and decision making.
Washington stepped down as President, but in his farewell address, warned of doing business with foreign nations. It was directed at Jefferson and the French, who had spies working in the country trying to subvert the new U.S. government.
Patrick Henry (also an Anti-Federalist) worried that a new Constitution would trounce on states rights and warned that in fact, it was purely a ploy by the Federalists to do away with slavery – in his warning, he used the N word. Not to make him look like the ultimate bad guy, in his defense, the economy of the southern states was and still is based on agriculture and at that time, there were no machines to do the work. Slave labor was an accepted practice throughout the world and to do away with it here would be absolutely devastating to the American economy.
My Uncle, Grandmother, Host mother, and real Mother have all lost their homes. =-(
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