The year 2008 has been one hell of a roller-coaster ride. Hopes soared, only to be dashed. Expectations rose sky-high before people realized they were biting the dust. What is worse is that the new year promises to offer little respite from the worldwide recession that has resulted in the rate of growth of the Indian economy slowing down considerably.
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| Paranjoy Guha Thakurta |
The months ahead are certain to prove difficult and more and more people have become circumspect. The more philosophical among us had anticipated the slowdown – after all, parties don’t last forever. At the end of the celebrations, someone has to sweep the floor, clean the kitchen, wipe the toilet, remove the broken pieces of glass and clear the garbage.
Here are some of the important resolutions for 2009. Remember your grandmother who asked you to live within your means. Don’t get overly enthused by financial bubbles that burst in your face. Neither let greed nor fear dominate your emotions when it comes to matters monetary. And, never forget to stash away a little bit for that gloomy day, that period of adversity. As the old saying goes, hope for the best but be prepared for the worst.
The first week of January 2008 saw stock market indices rising to record heights. The 30-share sensitive index of the stock exchange of Mumbai had peaked at a level of 21,000 and none could have guessed then that the year would end with the sensex struggling to remain above the 10,000 mark. If one had invested, say, Rs 1,000 in equity shares in the beginning of the year, the value of such an investment would have collapsed by 60 per cent in eleven months. In early-2008, foreign institutional investors were gloating about India’s famous ‘growth story’ after having pumped in an estimated $ 18 billion into the country’s share markets during calendar 2007. In the course of the next twelve months, the same portfolio investors had run away with more than 80 per cent of their money – net outflows had exceeded $ 14 billion by the end of November.Â
One direct consequence of FIIs withdrawing their funds was a sharp depreciation in the value of the Indian currency vis-Ã -vis the American greenback. Between March 2007 and March 2008, the rupee had appreciated against the dollar by over 15 per cent. Between March and November, the rupee had lost a quarter of its value: the exchange rate of one US dollar crashed from around Rs 39 to roughly Rs 50 in eight months. Consequently, job losses have mounted, especially in labour-intensive, export-oriented industries such as textiles and garments, gems and jewellery, leather, handicrafts, sports goods and processed foods. One estimate places the number of jobs lost in garments and textiles manufacturing companies alone during 2008-09 at 1.2 million. Behind each retrenched worker is a family with a bleak future.
Exporters lost out on both counts. When the rupee became strong, their products turned uncompetitive in international markets. Now that the Indian currency has weakened considerably, exporters are unable to reap benefits from the situation since markets in the developed West have shrunk. Consumers in North America, West Europe and Japan are postponing purchases of many of the products that are exported from India. Not surprisingly, for the first time in a decade and a half, non-oil exports from India declined by as much as 20 per cent in the month
of October.
Few could have imagined that crude oil prices would plummet from $ 147 a barrel in early-July to less than one-third the amount at $ 45 a barrel by December. Yes, prices of petrol and diesel are down. As inflationary pressures at home eased – the rise in the official wholesale price index that had stood at a high of 13 per cent in August (the highest in thirteen years) fell below 8 per cent -- politicians belonging to the incumbent regime heaved a huge collective sigh of relief. But their enthusiasm at having tackled the monster of inflation may be a bit misplaced. Although the rate of inflation has declined, this does not imply that the prices of articles of mass consumption have fallen. What this signifies is that the speed at which prices had been rising has decelerated. Inflation would remain the single most important issue before the electorate.
During 2009, the rate of growth of the Indian economy is almost certainly going to decline to somewhere between an optimistic 7 per cent and a pessimistic 4 per cent. The writing on the wall is clear. The index of industrial production fell in October for the first time in 15 years. To add to economic woes were the terrible terrorist attacks in the country’s commercial, financial and trading capital Mumbai that started on November 26. What followed was an outburst of belligerent nationalism. Still, not everything on the horizon appears hopeless. There are silver linings in the dark clouds of recession that are hovering. Yes, India is still better off than most countries. The country’s economy is not contracting.
The outcome of the November-December assembly elections sent out a clear message: the ordinary voter, poor and illiterate she may be, cannot be easily fooled. The voter is not swayed by emotive issues related to terrorism, religion and caste. The voter is far more intelligent that he or she is made out to be. They differentiate between the more-corrupt and the less-corrupt, the corrupt-and-efficient and the corrupt-and-inefficient. They know politics is not a zero sum game in the world’s largest democracy. They can indeed distinguish between the greater and the lesser evil.
The author is an educator, an economic analyst and a journalist with over 30 years of experience in various media—print, radio, television, Internet and documentary cinema.
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