Srinivasan and Ashok: Topical subject and TN has done an excellent exposition.
When international trade shrinks,global growth also shrinks.A smaller cake leaves everyone hungry.This happened in 1980-82when there was a debt bomb ( mostly in Asia and Latin America)
India in 1991 had lost its morale,after pledging its gold reserves. Now India is high in consumer confidence.In 1991 India didnot count.Now it does and has become a regional and global growth engine.
Partly the lower economic performance is due to India;s coupling with the global economy,as identified by Ashok.True,coalition Dharma is pulling down central initiaitves.There is another reason for this slow down:in India's federal structure,the states are not playing their part.GST is held up.Infrastructure development is mostly a states subject.The required pace in approvals,implementation is lacking and even approved projects donot get completed.Plan allocation suffer from short falls due to states not showing the needed seriousness in implementation.Outlays not matched by outcomes.
The role of states needs to be reassessed in stimulating growth,creating jobs and incomes.Mechanisms for center-states dialogue for pushing growth are not being effectively activated at political level.The planning commission is playing a passive role.
India does not need another dose of so called reforms but incremental reforms that should happen at the state level.
Indian politics has taken the confrontational route,as it is happening between the Republicans and Democrats in USA.Politics for national growth is missing.One hardly hears of any constructive suggestions from the main opposition to stimulate growth.Opposition in states is an apologia for alternative agenda.No political leader of any stature is available to push for a development and growth agenda.
S.Narendra
dear allPresently, all the economic papers are writing about the current economic crisis, comparing with that of 1991 crisis. Though there is a difference of opinion among the economists, the fact remains that the people undergo suffering because of this economic crisis.I had requested Mr T N Ashok Former Economic Editor of PTI and presently a well known Corporate Communication Consultant to share his views on the current economic crisis, for the benefit of our members. Mr Ashok has also covered 1991 crisis and also closely monitoring the current crisis. I reproeuce below his views for the information of our members.SrinivasanPrime Point
Is the unprecedented 1991 financial crisis returning in 2012?
By TN AshokFormer Economics Editor PTI and renowned financial writerIs the financial crisis of 1991, when the then Prime Minister Chandrashekhar made the infamous statement " Khazana Khali ( treasury is empty), returning as the phantom to give nightmares to the policy makers, government and the people.People are making odious comparisons based on similarities in the economy -- Current Account Deficit in 2012 is 4% as compared with 3% of 1991. Fiscal Deficit is 6% in 2012 as compared to 8% in 1991Foreign Exchange Reserves can cover only six months of imports in 2012 And in 1991 India has just reserves to last two weeks. Figures might vary but situation seems similar, yes and no.Short-term External Debt today is double that in '91 (as share of overall debt) Yes the figures can be scaring but we are nowhere near the 1991 situation. Because the external environment was quite strong then and India was on the brink of launching its economic reforms in 1990s freeing the nation from several of its state controls and restrictive policies that cramped investments both domestic and foreign.Today in 2012, India is affected more by its external environment, namely the global recessionary trends crippling European economies and the trillion dollar deficit in the United States. Even at the height of 2008 when the world economy went into a tailspin, India was insulated by its progressive but safe policies and safe forex reserves. And sound fiscal and economic policies that prevented capital flight.Today in 2012, banks are better capitalised than they were in 1991. We have foreign exchange reserves next only to China but there has been a rapid drawdown in the last couple of months due to investors withdrawing money out of the country and India paying for higher cost of imports as the Rupee went into a unprecedented roller coaster ride sinking to its lowest at Rs 56 to a US dollar.The high cost of crude globally has pushed up import costs. Also to provide relief to domestic oil companies from overburdening subsidies on kerosene and diesel and cooking gas, the government was forced to revise administrative prices of pol products (petroleum, oil, lubricants) four times in a year much to the chagrin of the population already reeling under unprecedented food inflation.The 1991 fiscal crisis was more due to restrictive policies and the cathartic process before a major economic restructuring and fiscal consolidation process. But the situation in 2012 is more due to the impact of the global financial crisis and consequent dull investment climate, portfolio investments rolling out from essentially the stock exchanges as capital seeks to achieve a balance across the globe for best returns, high inflation triggered by food and commodity prices including vegetables and other essential commodities, which again Is a global phenomenon. Worldwide food shortages due to mismanagement by certain economies have also left its impact on India.Increased public expenditure by the government on populist schemes for vote banks has also restricted capital availability for productive investments.The real estate crisis is also unprecedented as prices of properties rose beyond unrealistic levels that it brought consumer resistance and lack of capital at attractive rates to finish standing projects because of capital shortage and banks refusal to lend at lower rates because the federal bank raised lending rates to curb money flow to arrest inflation have all contributed to the tight money supply situation.3 The 2012 financial crisis appears to be a temporary phenomenon which the government can tide over for two reasons – there is money supply available with banks unlike in 1991, but banks are holding onto it to bring inflation down. Forex reserves are depleting today and not the empty coffers situation of 1991. Capital flight can be reversed when government gets out of its policy paralysis and inertia and continues reforms process more aggressively while insulating itself against the shocks of global recession.Major decisions expected from the government that can reverse financial crisis : Further reforms in infrastructure sector especially power, cement, roads and highways, steel, coal etc. Raising equity participation in the civil aviation sector by foreign investors and foreign carriers could all help to contribute to growth of GDP which could automatically reverse the current recessionary trends. Further liberalisation in the realty sector allowing foreign equity could also resolve the financial standoff in the sector.The reasons for policy paralysis or inertia is mainly due to the karma of coalition politics as some of the partners are opposed to further reforms particularly in the retail sector. Unless government decides to free itself from the pressures of coalition partners and kick the economy forward, the nation's economy threatens to go into a limbo.With elections looming large on the horizon in 2014, government needs to act fast and reassure people that 2012 is not 1991. UPA may not see another term.feedback to ashoktnex@gmail.com
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