The Sun Had Never Set... But It's Rising Again!

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There is gloom all round. Red seems to be the colour of the moment! Pessimism seems to abound. Consumer sentiments seem negative. Credit crunch seems to have entered popular parlance. Outside India, the world’s  two biggest economies are displaying symptoms of a disease which is defying all cure and is spreading slowly but steadily and bringing more gloom in its wake for the rest of the global economy!

So, is the future of India too bleak and gloomy? Will the sun that was shining upon our economy for such a long time setting? Is our country in for a long dark night of economic downturn? Well, let me share with you hard facts and figures of our economy and then you decide if our country is in for darkness or it is just a mirage.

1. Falling Inflation: Inflation has been steadily falling and has regressed to 10.68 per cent. And this southward journey of inflation will continue and reach 7 per cent by March ’09. Indeed a good omen!

2. Falling interest rate: The Reserve Bank of India has taken steps through livers at its command -- CRR, repo rate -- to indicate to the banking system that in due course the rate of interest too should move southward, including at retail segment. In the process making the servicing of existing loans more bearable, new loans more attractive and affordable.

3. Falling crude oil prices: The international crude oil prices have fallen and stabilized at around $70 per barrel. Given the spectra of global slowdown in the past couple of months it will not witness a northward climb for some time. Result: saving of precious foreign exchange, assistance in keeping the inflation on its downward journey and boosting profit of select sectors.

4. Foreign exchange reserve: Today our country has a healthy foreign exchange reserve standing at a formidable $258 billion. This will give us deep pocket and staying power to see through a global slowdown in the future.

5. Capital expenditure: Corporate India has committed a capital expenditure of Rs 5, 00,000 crore in the July – September ’08 quarter itself. Will the fallen stock market retard the capex plan? The answer is an emphatic NO. corporate India capex plan are funded through a mix of retained earnings, suppliers' credit, depreciation and of course interest bearing debt and PE investors. Only miniscule funding comes from stock market in the form of IPO / rights issue. Yes, there could be liquidity crises which could make access to interest bearing debt difficult, but steps are already taken by RBI to ensure that this issue is adequately addressed and  there should not be much reason to complain on this count.

6. Rising Rupee against Dollar: Yes, it will impact our export sector adversely. But the contribution of the export sector to our economy is miniscule. Hence the GDP growth juggernaut will roll on regardless.

7. Robust saving habits: The saving habits have only become more robust. From 23 per cent it has now inched closer to 36 per cent. This positive shift is fuelled by the introduction of many new avenues of savings – insurance products, mutual fund products, etc. Of course, in today’s situation the saving habit may turn in larger measure towards government-owned instruments as was the case in pre-liberalization era.[PAGE BREAK]

8. Safe banking system: Our banking system, which is predominantly owned by the government, does not show any visible adverse symptom. Much before toxic assets burned holes in banking balance sheets in other parts of the world, our banking system always kept its eyes firmly on NPA, which occupied considerable top management time and attention, without exception. And hence has not spiralled out of control even today!

9. Self-consuming economy: Our strength is our self-consuming economy and our ever-increasing size of 300 million middle class. This factor will insulate us from global downturn and our middle class which is embedded with demographic dividend – 70 per cent of our population is below the age of 35 years – will once again ensure our 'consumption' does not fall.

10. No recession in sight: Yes, our economy is not facing the spectre of recession. Yes, our GDP growth rate may slow down from an awe-inspiring 8 per cent plus p.a. to a more humble 7 per cent p.a... But even this slowing down will not stop us from keeping our date with destiny of occupying our rightful place among the top 3 developed economies of the world in years ahead. Yes, we may reach it a year later, but reach we will.

Now you decide if we should be worried or be smiling – Whether the sun has set on our economy or is still shining except that a few dark clouds had kept the warmth from reaching us?