Is India still in recession ?

14 Dec

If you Google this topic you are going to get numerous answers with some mind boggling stats to tell you that India is into recession or slowly moving into it.

I am going to give you a different opinion altogether! I don’t believe even for one second that India is into recession. In fact I will take the “audacity of hope” as my tool to declare that India wont even go close to recession.
You may argue back saying , “dude! don’t you read newspapers or watch news ? did you not check the IIP stats? The numbers are negative man! Our sensex has taken a complete nose-dive. People are loosing their jobs left-right and center. and you still think India is not into recession or moving into it?” ..

I stick by what I just said .You see, India is having a spill over effect of a global recession. And it is that spill over effect that is causing these job loss spree. But compared to our western counterparts Indian companies are not giving out the pink slips in droves. No Sir!

Tell you why …

First , India is not a globalized economy. That is , India is not completely globalized like European countries, Japan and China.

Second , India was already facing a huge inflation problem when the sub-prime crisis (which triggered the global meltdown) started . By the way, Indian lending laws are so stringent and fundamentally strong that , our country cannot just go into sub-prime like crisis at all. We Indians are firm believers in saving money and spending in thrift. So dont worry.. India wont go into a sub prime crisis.

Finally, India’s growth story is not due to any external factors . nay.. India’s growth story is completely domestic driven. The so called middle class income expansion is not just coming from IT and ITES services (which is prone to global imbalances) alone. India is a huge growth engine moving forward in all factors. Our business honchos, policy makers made sure that India and its currency stays as much immune from global currencies as possible.That is why , India is not seeing an companies going bankrupt. How else would you explain ICICI, HDFC and other banks flourishing so well when banks from other parts of the global are going bankrupt? come on .. tell me .. why ?

So how can we explain the negative stats of IIP . Just for the perspective. Our numbers are like  -0.4% as compared to 12.2% last year. This is primary because of decline in exports and fear factor among Indians.Did you know that in theory a recession in the rich world should hurt India less than other emerging markets: exports amount to only about 22% of India’s GDP, against 37% of China’s.

Read the real story of numbers here : Negative show: Industrial output contracts in October.  Read the complete article please.

China is making massive money from it exports like hell because they make goods a rock bottom prices due to availability of cheap labour.

Allow me to explain…

Let us take the example of a manufacturing firm of foreign origin/ or even Indian origin which produces 2000units of its products. 100o units for exports and the other 1000 units for domestic consumption. The company shall be termed X. Let us focus on export units – 1000 nos . Due to the global financial problem people in the other side of the globe don’t have enough money to buy the  products of the company X which they usually do.This would mean the products earmarked for shipments remain unsold in warehouses thereby increasing the inventory. Now, the companies get money only after the products are shipped to the other side and bought by consumers. The money/income thus received is then used to pay for the labour involved, raw materials, profits taken and then a huge chunk is put back into the company to produce more of such products for exports again.

Are you with me ?

Good.. So , when there is no money to re invest , obviously the company wont be able to produce any more goods. Also, the manufacturers will be cautious to use the reserve surplus to manufacture more goods because the economic outlook is bleak.  Eventually and in the long run when there is no enough money to pay, people are shown the door.

Meanwhile, even if we Indians have enough money to spend , we will suddenly check the global scenario and a friend will advice to his colleague , “damn, see US and Europe is into recessions, people are losing jobs.. and that India guy who studied in IIT and such a rich fellow . He killed his family and committed suicide cos of bad debts. Maybe we should be careful now . If  such big big countries can have problems ..how soon do you think we will get into trouble like that . Let us be careful now, yaar! Who knows when we will lose our jobs? Let us save now . We can spend when time are good . ”

Wife will advice her husband , ” listen, don’t buy too much from the stores , ok? We will manage . I saw TV news about the finance problem. And i heard from my mom that her friend’s son lost his job . Did you check the share market points today ? It was down and in red for the whole day , yesterday. We have enough for next 2 days . Just buy little “, and for the first time she will use the word budget … ” Let us have a budget from next month, ok ? ” … Sensex, Budget are words which are new to her dictionary..

Mom will catuion her son/daughter ( who  just joined a firm fresh out of college) , ” Listen, don’t go out too much with friends and waste your salary on movies , clothes or jewellery. Manage with what you have. and beta .. don’t resign or jump jobs. When you get the first salary. Give half to me, I will put in your savings. Don’t buy that bike now. Intrest rates are high . Buy it after 6 months “…

The panic button is on and the story goes on …

Media will use the panic to give you more sensational news from abroad and get you more worried.. It is cyclic..

We start saving a lot more than we should. Hence,money gets stagnated .

When you don’t buy stuff how are you going to give money back to the manufactures to produce more? If they dont have enough to produce, how are they going to pay your salary? When they don’t have enough money to pay your salary ,cos of no work getting done , why do you expect them to pay you for nothing and not ask you to leave?

Simple right?

So, as you see .. the story is we get sentimental and extra cautious when we hear the news around us .

Don’t do that ..!

Check not the news .. check the real facts . Check real information released by the government and listen to well known business industry leaders.

The India Finance Ministry with RBI under the leadership of Dr Manmohan Singh and Deputy Planning Commissioner Montek singh Ahluwalia is doing a good job. The steps taken as of now ( with two stimulus package and petrol price reduction) is showing signs . Inflation has come down. The full impact is yet to be seen. A third stimulus package is on the cards. So relax.. Our policy makers are much better than our counterparts in other parts of the world.

India is having spill over effect. Not a recession. True , our economy has slowed down. From an extremely robust GDP growth of 8-9% we now predict 6% . But that would still make our country one of the fastest growing economy in the world. Only India from the so called BRIC (Brazil,Russia,India,China) nations is faring well compared to others.

But remember in economics and finance, as in other aspects of life the rule still holds water – What goes down should come up. And what comes up , should definitely go down” . Be it Sensex, economy, failure, success, happiness, sadness, love, hatred ..  You can just play the game of the gods..

As one great poet cum dramatist so aptly put ” the world is stage …. ”

I realize this is a very long post. Might be boring for some. But I have tried to put facts and my thoughts in a very simple way. I am no economist and will gladly accpet that I am wrong if proved so ..

I welcome your suggestions and ask those who read to spread the word around if you see merit in my opinions.

Also, check this article,China and India : Suddenly vulnerable , from Economist on what they think about the effects of global recession on India and China.

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15 Responses to “Is India still in recession ?”

  1. Gilmour Poincaree December 14, 2008 at 7:16 pm #

    Very interesting arguments … thanks a lot …

  2. spartanvikas December 14, 2008 at 7:30 pm #

    Thanks for dropping by with your comment

  3. prakashn2007@gmail.com December 15, 2008 at 12:30 am #

    Definitely agree with you. Our financial commentators in the “Press” lack the ability to
    present facts on the ground. Lazy analysis has led to all us crying wolf or “recession”, when it would have been more appropriate to encourage readers to focus on being more productive in their Jobs and believe in the Indian virtues of thrift and savings, being convinced that it will serve us well in the years to come

  4. spartanvikas December 15, 2008 at 10:33 am #

    thanks for visiting and sharing your thoughts here.

    I firmly believe that India will never go into recession and that we have aptly placed to take lead and become a economy powerhorse in the region.

  5. Raghu December 15, 2008 at 12:29 pm #

    Hi

    I love your concept on Globe recession. Yes, we need to think that we are still in a better side.

  6. spartanvikas December 15, 2008 at 2:51 pm #

    Hi Raghu ..
    Thanks for your support on my thoughts. and thanks for visiting my blogs . feel free to give ur opinions as well…

  7. Mona December 19, 2008 at 11:13 am #

    Loved the article…
    As I am a management student, we talked a lot about current recession and its all people sentiments that is making the situation worse, rather than any other thing and I really agree that our government is doing a good job in infusing confidence..

  8. spartanvikas December 19, 2008 at 1:02 pm #

    i glad that u liked my post and really happy to see that you and your friends discuss such nationally relevant topics and see the truth behind the recession.

    I hope one day when you are done with your management studies you will do your part in anyway you can to contribute to the society ..

    which coll are u in and what is your specialization ?

  9. Anmol Behal February 7, 2009 at 6:45 am #

    dude .. thats jst simply superb .. i agree wid u .. and dis was nt at all a boring one.. the best i read in last 2 months !!

  10. Anmol Behal February 7, 2009 at 6:47 am #

    and do tell me mre about urself .. and gve me ur yahoo or gamil id ..if possible

  11. deepu March 6, 2009 at 2:04 pm #

    hi.. it was really too interesting.. it was my argument in my mba seminar.. tooo interesting sir.. keep it pu..
    when i saw the last linei felt oh no its just over.. i guess u can get my opinion out of it..

  12. Vaijayanti November 4, 2009 at 2:52 pm #

    Dear Sir,

    It was fantastic and you put things so simple to understand. Many thanks for your contribution.

    Best Regards

  13. Sunil February 9, 2010 at 7:22 am #

    I agree with what you have said, but are we people of India slowly moved into a trap by just following the economics of the west? The new amendments in our Foreign direct investments and the ripple effect which is the artificial competition that it will create which is ought to be unhealthy as they are forced to skip or change the strict norms of RBI that favor these companies/banks…. of investors in the name of making favorable atmosphere?

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