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Analysis of Current Financial Scenario and its Impact on India
Indian Financial Situation
India, in the eyes of the world
seems to be afflicted by a financial virus of sorts. Is it endemic,
epidemic or pandemic? In seeking the answers we are compelled to trace
the genesis of problems and the course of progress.
India opened up its economy in the early 90’s after great deliberation. The tariff barriers were broken down and export, import policies were liberalized. Curbs on foreign direct investment was rationalized. The Indian rupee was unshackled and rate was allowed to be determined by the market. Consequent to the liberalization India experienced unprecedented growth. Information Technology industry only added to the momentum.
In aviation sector, the ‘open
sky policy’ saw a number of private airlines with foreign equity pouring
in and flying high. It provided connectivity across the country and
competitive pricing. Along side telecom, insurance and financial sectors
were also opened up. Many overseas players taking advantage of the favorable
climate, set shop in the growth propelled economy. Many states vied
with each other to provide special economic zones virtually spreading
a red carpet to global and local investment.
Internal and External economies of scale
From being just an exporter
of raw materials and a market for finished goods, India, has transformed
itself to exporting finished products in electronics, textiles and machinery
to the western world employing strict quality control methods.
what economists call as, ‘Internal and External economies of scale’
were milked by the adventurous entrepreneurs. The last decade and more
saw a spiraling growth as suggested in the ‘Keynesian Model’. More
Investment – More Employment – More Income – More Profit – More
Expenditure and savings leading back to more investment so on.
There were minor setbacks like
the Gulf war, Dot com busts, and crash of the money market. The stock
market crash after the Harshad Metha scam is not a distant memory. ‘The
bulls exited, the bears ruled and the stags were left clueless’. The
lull lasted only for a couple of years. The momentum of growth was a
catalyst and the bulls were back to the fore. The money market galloped
from 8k points to a dizzy 21k. Its was incredible and even the most
conservative investor was drawn to the market ‘ To make hay while
the sun shines’.
As the rule of nature goes,
‘What ever that goes up should come down’ has become a reality.
Cycle of troughs and crests have become the order of the day. America
under Bush was ambushed literally through needless aggression and Big
brotherly attitude. It got stuck in Iraq and Afghanistan. The ‘green
back’ nose dived and the economy saw a down turn. The weakening dollar
and the global meltdown had its catastrophic effect the world over and
in India particularly. The newspapers screamed that ‘If America catches
cold; India sneezes!’. In US along side the money market the banks,
the auto majors and aviation have touched its nadir!
Understand the Indian Economy
Future of Indian industries
Every industry is crying for
a bail out. The government has pumped in funds to reverse the depression
mode. In sync Indian market too started to decline. The government in
caught in a ‘Catch 22 situation’. It has to maintain growth and
stem inflation as well. Precisely why, despite encouraging results from
corporates, employment opportunity is dwindling. The Sathyam fiasco
at the dawn of the new year seem to be ‘Final nail on the coffin’.
Acting swiftly the government while looking to punish the guilty is
equally active to bail out a sinking ship. The finance ministry has
gone all out to stem the rot. It is pumping in funds directly and indirectly
by lowering the cash reserve ratio and repo-rates it hopes to trigger
infrastructure, growth and overall development.
India in particular is eagerly
watching the confident president elect Barack Obama, to turn the tide.
‘Yes, we can’, was his opening mantra. The infectious enthusiasm
is evident in his oath taking address where he is daring and raring
to go. He is willing to take ‘Head on’ the ‘Ominous clouds’
and the ‘Raging storms’. The ripple effect will trickle down to
The doomsday protagonists are
however skeptical and pessimistic. They foretell and portend crisis,
catastrophe and calamities. Will Indian financial scenario see an up
swing? This is a question upper most in the minds of every thinking
citizen. India is a vibrant economy, responsive to change and resilient
to its impact. The developed world is curiously wondering a phenomenal
growth in the two Asian giants – ‘Chinese Dragon’ and ‘Indian
Tiger’. Definitely, India is bound to rebound from temporary setbacks
and cruise high on its road to progress.
We are only going to live, to see it!