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Saturday, April 25, 2009

Has India managed well in the times of recession?


The global recession is perhaps the most used, or rather misused word today, being quoted by everyone from semi-literate laymen to the ‘hyper-literate’ pundits of financial world alike. There is no dearth of theories, explanations, figures of losses, forecasts for short and long durations, advices, fears, hopes, bail-out packages, job cuts; anything we could think of that is even remotely connected with the recession. The point here is not the technical details, figures or analyses of the situation; they are plenty everywhere. It is the spirit of India and its instinct of survival in this scenario that is the subject.

To start with, the present recession can be considered a classic example of what is known as the ‘butterfly effect’*, or ‘domino effect’**. Briefly saying, the origin of this crisis lies in the greed of realtors in USA who started sub-prime lending, i.e. lending to the borrowers with dubious capabilities of repayments who then resorted to sub-lending the loans. This chain ultimately lead to gigantic bad debts and swallowed the multi-billion dollar US housing-finance giants like Freddie Mac and Fannie Mae. Their collapse in turn triggered fall of other big investors who suffered losses in real estate investments, finally causing a panic in the financial markets, resulting in heavy selling and pull out of money and consequential free fall of share indices. The reaction grew only worse and spread to other parts of the world. The end result was free fall of global markets, shrinking or total collapse of many a business entities and massive job-cuts all over the world.

While there have been doomsday predictions every where equating the present crisis with the worst ones in the history, comparatively India has managed and fared well, so far. That India is insulated from the global crisis is nobody’s case. There have been visible effects of the global slowdown. But certainly the effect here is much less than the macabre scenario of financial markets that is projected in the more developed nations.

 The fall in the GDP growth rate and loss of jobs has not been as heavy as was initially feared, although the share market indices have since fallen steeply. In some cases, there have even been pretty good fresh investments and job-inductions.

When the USA and Europe look frightened of the future, an average Indian does not seem to be so badly hit. Things are still moving, albeit at a slower rate. The reason is not far to seek. Indians are known the world around for their perseverance and capability to adapt. Another factor is the Indians’ somewhat emotional and social approach in every sphere of life, business included. This explains our way of dealing with the present crisis, with far less lay-offs than anywhere else.

But a rather least noticed fact is that in our country a very major part of population is in fact NOT involved with the investments in share markets, realty or other such financial activities, but is still largely dependent upon the informal trading at local level, say in the small time markets nearby the living places for daily needs- local fruit, vegetable or grocery shop, milk vendor, domestic and other personal services etc, due to lower earning and living standards, and partly because of a conservative approach towards money. These are market systems which are somewhat insulated from the large scale formal financial network of national level, which is affected harder by the global crisis. It is this second level informal social trading system which is still holding strong like a steel framework that keeps us going even in face of the worst global financial crisis.


[* Metaphorically, a butterfly fluttering its wing in one part of the world could possibly trigger a hurricane in another part of the world.

** One event triggers a spate of similar events that propagates like a wave going long distances.]

 


 I wrote this for my college magazine :D

17 comments:

  1. Objection melord... those who say India is not affected or the effect is nominal should get their facts right..




    Obv. the article is really very good.. the description and the way Recession or the slowdown started is very educative..

    ReplyDelete
  2. Hi Abhinav,

    thanks for your frank opinion.

    However, I have nowhere stated that India is not or nominally affected. India has been affected but certainly not to the extent that the developed countries have, and it is now a fact well accepted by all and sundry.

    So, Objection overruled !! :)

    ReplyDelete
  3. heya!! good post!! nice to see all the facts put in one place!! well written and crisp - Just what the doctor ordered!

    Coming to the effect on India,though To an extent like any other country across the globe, the impact was npt devastating as the Uncle Sam's land or other countries - All thanx to the well laid ground rules in our banking and financial system.

    The present job-cuts and wage bashing also is not a direct impact of recession, but more a over-cautious ( if i can say) measure to balance the effect ( read cost cutting) in the countries severely effected by it (primarily coz India has the most business from OUTSOURCING! - so as u've put in the butterfly effect).

    So i agree with your theory that we are effected-But to a largely lesser extent by this dreaded recession!

    P.S: written with minimal knowledge in finance and other related issues - hence should be granted pardon in case of any wrong statements!

    Well written buddy!

    cheers
    rammy

    ReplyDelete
  4. hiii Rammy !!

    thanx a ton buddy for such an encouraging comment :D

    we are affected but not upto that level, also probably because Indian financial markets exist on 2 levels - organized (formal)-- comprising of all the banks and financial institutions and most importantly the stock markets and second

    the unorganized (informal)-- comprising of local lenders, esp in rural and semi-urban areas. because of the latter category, money is still blocked with the public. the unorganized level has actually acted as a shield against recession because most part of our population is widely separated from the from the formal market which is most effected by the foreign up-downs.

    both the levels exist parallel and have their own relevance

    and in this recession the unorganized financial market has emerged as a blessing in disguise :)

    keep coming :D

    ReplyDelete
  5. Good one, to the point.

    I may like to add one more point. People in India are essentially conservative in spending. They are more of a "save-and-then-spend" than otherwise. Well, with consumerism in urban areas changing the trends; yet, the vast majority in rural watch their spending. These traditional values coupled with our banking system has balanced the "transactional" based management along with "relationship-based".

    ReplyDelete
  6. Hey AS i am really sorry. I am seeing this awesome post just now...Yes india is not as badly affected by recession as the developed nations are. Thankfully we did not overdepend on those countries.

    Sorry time constraint ho gaya...will write a detailed comment later :)

    Love ur posts yaar...

    ReplyDelete
  7. hii sis :)

    thankx for the thoughtful comment yaar ... yup! even Rama Bijapurkar agrees in her latest book that Indians are one of the smartest consumers. the relation ship based banking in India has saved us !


    :)

    ReplyDelete
  8. hi Gayathri :)

    hehehe thanks yaar ,
    haan we did not depend too much, and our unorganized financial market too has acted like a shield rather I would find it more appropriate to compare it to the deep roots of a big tree, that hold the tree firmly to the ground.

    hehehe I too love ur blog re.... :D

    ReplyDelete
  9. Well written and Insigtful post on sub prime lending...

    The one about the secondary market which acted as a steel framework is a nice point... Though i feel its too early to judge if India has been affected by recession, as fog is yet to settle down.

    ReplyDelete
  10. hii Prashant

    thankx buddy :)

    I feel the entire sub-prime lending thing is the outcome of the underlying greed, an inseparable part of the human nature....but thankfully we are still in a better position because of the secondary market which has acted as a steel framework.

    :)

    ReplyDelete
  11. Yeah I am proud of the fact that India is subsequently less affected, its due to the economic policies that we managed to stand by and did not let it slip off ever because of greed....but it also happens that how much ever we hold our strings strong....ultimately we get affected by the powerful countries around us....its sad but true!

    Great post....very intelligent! :)

    ReplyDelete
  12. hii Aditi

    thax a lot sweets :)

    yup! we have manages well and have sailed through the storms :)

    ReplyDelete
  13. Aaaila!
    You cannot overrule reee!

    India is very badly affected.. And I don't think there are degrees of bad-ness. yeh word sahi hai kya? :P

    jis pe beet rahi hai unse poocho!

    ReplyDelete
  14. hii Abhinav

    I can understand ur position , esp when u r struck in a boring job ... :P

    ReplyDelete
  15. Ok here's my detailed comment after 2 odd weeks :)

    I believe that India is not badly hit...well yes some amount of destruction is seen for sure. But then that happens everywhere. What needs to be applauded is the fact that in India though job cuts are significant, it is not as extreme as it was in US (was not like Lehman bros kinds).

    I somehow feel proud of the fact that we are not hardcore capitalist country...had we been a hardcore capitalist country...we surely would have faced a terrible problem.

    ReplyDelete
  16. hii gayathri

    absolutely true yaar :)

    ReplyDelete
  17. Aditya prototypeApril 05, 2012

    Yes indeed india has remained unaffected in the times of financial turmoil and the great ecconomic slowdown caused by the subprime mortgage crisis in the USA,if the us govt had acted timely and resurected lehman brothers by giving it a bailout of $3 billion,it wud eventualy hav saved $13 trillions and the chaos it caused worldwide,all we can say is that "for the want of a nail a kingdom was lost"
    India on the other hand remain unaffected because of its Mixed ecconomy approach,contarary to most free market ecconomies we hav stringent govt interventation and regulation on trade and policies are framed keeping in mind the populace not the ostentatious business magnets
    Eric howbswam wrote in a european daily"socialism dead ,capitalism bankrupt now fatalism?

    ReplyDelete

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