The Indian Economy Blog

December 29, 2008

Whither Now, India?

Filed under: Basic Questions,Growth — Prashant @ 8:41 am

What does 2009 hold for India, given the global credit crisis and the aftermath of the 26/11 Mumbai terror attacks?

Joe Nocera, one of my favorite business journalists, thinks that India’s banking sector has managed to avoid getting dragged down by the financial maelstrom.

Do you agree?

And what is the outlook for the rest of the economy?


  1. I almost completely agree with the observation that the Indian Banking sector has managed to largely avoid the deep cuts that the present global financial crisis would have inflicted on it. However, it was not completely by design. Had it been that the bull run in the global stock markets- that in the Indian stock markets in particular- extended for another two years or so, we would have been deeply stuck in the euphoria of ‘financial innovations’. The advantages of being somewhat ‘behind the curve’ in terms of evolution of the systems, we managed to just stop short from pushing ourselves into the whirlpool of the financial innovation.
    The former finance minister had one strong- probably one of only a few- weaknesses, which was that he would have us believe that he was always in control and that the good things would never cease to push ahead. We are probably fortunate that the term of the present Government came to its last leg just at the time when the global financial dynamics fermented into an explosive mix of capital flows, unabashed speculative activity, superfluous rating activity, arrogance of the major global financial houses and so on. This is not to mean that the people at the helm were incompetent- it only means that nobody could foresee what was coming in the wake of seemingly endless good times.
    We are fortunate that our banking system is still rooted in somewhat traditional moorings. We have a strong bias towards savings based economic dynamics at the households level still. One has to remember that ‘good’ times can only deliver results based on the dynamics of the real economy- not by financial wizardy. As the RBI governor rightly pointed out in a recent seminar’s opening remarks, the real sector should lead the financial sector’s innovation; not the other way round.
    To look ahead, I personally have a feeling that the ‘decade after the crisis- should provide us a framework to look to those areas of growth, which are based more on manufacturing, auto, food processing, textiles and the like. Sound traditional, don’t they? We cannot forever depend upon the software exports as the drivers of the nation’s economic growth. We do have the strength of extremely strong aspirations- regardless of what narrow focused opinions might say, the Indian social fabric is getting stronger each day. It is becoming less vertical and more expansive. While economic disparity has increased, the social disparities have certainly come down. While the 1991 crisis led to the release of the momentum to reach to the level of launch-pad, the present crisis, once it loses its vicious bite, only has to lead to further spread of Indian entrepreneurism. I for one believe it to be so.

    Comment by Dr. Sadananda Halageri — December 29, 2008 @ 2:42 pm

  2. Good reading, Prashant! Nocera brings out the stark differences between the monetary institutional machinery in India and in US, which to me boils down to a single word–Discipline. The need of discipline in financial life, similar to other walks oflife is all to imminent in troubled time like the present.
    All these talk of credit crunch and recession, and how it hurts the ‘real economy’ is a long story. But as for the outlook part of your post, I am afraid it does not appear very encouraging, at least in the short-run. With ‘confidence’ on the personal economic prospects of an average Indian visibly shaken, thanks to the dipping markets and uncertain jobs,consumer demand is not likely to stage an upward trajectory soon. The typical Indian psyche of going by the ‘feel good’ factor is responsible for the reluctance shown by the consumers to adopt a precautionary motive, outweighing the speculative options on their demand for money. As evident, the reduced home loan rates for new borrowers is not finding many takers. In fact, the common man on the streets may not be well-versed on the nuances of recession, but that does not prevent him to go by the prevailing ‘mood’ of the market place, which is not really upbeat.
    Solutions? Just as the traditional Indian view suggests to hold ground on stormy seas, waiting for the tempests to subside, time seems to be the only solace. Once the common people regains their confidence, or at least sheds the defensive, will the upswing initiate. I would like to put it somewhere around the third quarter of 2009, if not later. Maybe this is unwarranted reilience, but that is precisely what Nocera has been giving kudos to!!

    Comment by Dr. Sumit Mazumdar — December 30, 2008 @ 11:25 am

  3. I think it’s time we stop believing these journalists and start looking at the stats first hand.

    Comment by Puneet — December 30, 2008 @ 4:10 pm

  4. And where do you find these stats? Isn’t it really really costly to get them?

    Comment by anshul — December 30, 2008 @ 5:03 pm

  5. @anshul: good question btw, Do you believe those journalists pay money to access those stats my dear?

    Comment by Puneet — December 31, 2008 @ 9:30 am

  6. Had this crisis postponed for a few more years, considering the blind obsessiion to import american systems,I bet, Indian banks would have found themselves in the same mess. I won’t wonder much If India faces the same kind of the crisis down the line after a few dacades. Humans never learn from history.

    Comment by bvrao — December 31, 2008 @ 7:55 pm

  7. The whole Business system along with the banking system in India needs
    an introspection.It’s not only the Bankers but also ITprenuers other businessmen are not behaving appropriately .You can’t trust bankers,I bankers , businessmen,political netas any more.You have to come out with a system where you need a check on the checkers.
    The poor retail borrwers and the retail investors gets the raw deal.
    With Regards,
    Debashish Brahma.

    Comment by Debashish Brahma — January 1, 2009 @ 12:22 pm

  8. Debashish Brahma’s comment “…but also ITprenuers other businessmen are not behaving appropriately …” sounds prescient in light of the Ramalingam Raju/Satyam scandal…..

    Wonder if any Satyam shareholders read that right and got out in time….

    Comment by SN — January 8, 2009 @ 10:20 am

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