MELTDOWN without end

The contagion of the economic slowdown has spread far and wide and Indian economy, despite being in better shape then the rest, has begun to bleed.

Akash Bisht Delhi

Economic meltdown is changing paradigms and perceptions. Festive season has become the purveyor of bad news. Nightmarish stories of economic collapse are confounding economists and governments. Despite using every kind of monetary instrument to boost liquidity, businesses are in a deep mess. United States, which was the engine of growth for Asia and rest of the world, after sub-prime crisis and collapse of the financial market is gasping for survival. Keynesian prescriptions that were supposed to revive a depressed economy are proving to be inadequate. The contagion of the economic slowdown has spread far and wide and Indian economy, despite being in better shape then the rest, has begun to bleed. Its condition may not be as bad and tragic as that of the Chinese, dependent as it was heavily on foreign trade, but it is still quite disturbing. Textile, hospitality, information technology, real estate are some of the sectors that are hurting due to the slow down. IMF predicts that India's growth is likely to slow down to 6.3 per cent while World Bank has pegged it at 5.8 per cent.

With US, UK, Japan, China, Eurozone among others officially in recession, experts claim that this is the worst recession since the Great Depression of 1930's. In July 2008, the International Monetary Fund (IMF) predicted that the world economy will grow at 3.9 per cent in 2009, developed countries at 1.4 per cent and developing countries at 6.7 per cent. However, in November, after the onset of recession, the IMF has released new figures forecasting the growth of world economy at 2.2 per cent, developed countries at minus 0.3 per cent and developing countries at 5.1 per cent.  In past seven years, India for the first time has witnessed a decline of 22 per cent in its exports while the rest of the sectors are witnessing a similar pattern. The Commerce Secretary, GK Pillai, recently announced that more than 5,00,000 textile workers may lose jobs in next five months. The auto component makers are also facing severe crisis as it was recently reported that more than 2,00,000 may lose their job and 4,000 units may face closure. Pink slips have become an epidemic and reports of job cuts have become a common trend. Numerous big corporate houses in India have started downsizing their staff as part of their cost cutting procedure.

R Prabhu, Member of Parliament, while speaking in the Lok Sabha on economic slow down said that the government needs to work towards economic security after it has secured itself externally. He brought about contradiction in the banking sector where RBI rates were not being followed by the commercial banks. Citing this, Prabhu in the Parliament said, "I find that most banks, except for may be State Bank of India and Bank of Baroda, have not reduced their interest from 13 per cent to 12 or 11 per cent. This is loan to the industry. But unfortunately, most other banks have raised their interest rates from 11 to 13 per cent, which is ridiculous. And, at this point of time, if small and medium industries are not helped, then we can have a situation like China, where massive unemployment is going to be there..." China has slashed more than a million jobs. The finance ministry seemed to respond to the demand made by Prabhu when commercial banks reduced their interest. Prabhu also demanded further decrease in VAT and service tax so that people have more money in their hands.