January 2008 was the month which saw the markets fly high, Sensex crossing the 20,000 points mark, foreign investors began to invest more in our country, but the spring was rather very short. India really did believe that at this rate she could completely emancipate herself from the tag of a “developing nation” and see herself in the midst of the developed super-powers of today’s world. Every private working entity from ICICI to Infosys to DLF saw lucrative business opportunities and began to make the best of it. While the markets still climbed the acclivity, these companies saw profits pour in, contributing to the GDP of India.
Even a person with a myopic eye could see the markets heading towards culmination and after that, is now - the present. Beginning July – August 2008, thanks to the global economic problems, fall of global major financial institutions, the economic environment turned upside down just over night. We are still going downhill and the nadir is not visible. The Bombay stock exchange sensitive index has fallen by around 54% in 2008.
By 1st January 2009, the Sensex stood at a mere 9,700 points. All this, because of some glitch in the working of some of the world’s finest Investment Banks? All this, because of indiscriminate ways in which business was done by the global (read American) institutions. Few of the American Banks had undertaken a business model and created financing products which created tradable paper whose intrinsic value was zilch. For instance, housing loans were given to people who had no repayment capacity against property which were overvalued. When the market crashed due to the loan repayment defaults, it impacted the lending the banks adversely. This caused a chain of events pulling down every financial institution in the chain. Thus the excessive borrowing by consumers and reckless lending by managers escalated in an atmosphere where gains seemed everlasting, but crashed before the next sunrise. Some of them, for instance the Lehman Brothers went down, but pulled the world’s economy with them and their ripples continue to pose tsunami like problems to the countries of the world and to India.
The global downfall has had its impact on Indian products. The fall in the global financial system caused scarcity of the foreign money. Foreign investors enchased their investment form the Indian market, bringing down the Sensex.
As if this was not enough a barrage of terror attacks was hurled at many of our cities; countless lives had been lost, damage to properties worth billions was incurred. The year ended with a vicious attack on India’s financial capital which saw the nation crippled.
Now the road ahead…
It appears that the global crisis will continue into 2009, but India will not be affected as much as the other nations. India needs to do more to affectively attend to this crisis.
- Rev up our urban infrastructure, use money where it is needed most, for the country to progress and develop. I am not saying that the government is prodigal in its expenses, but it can be used to attend primary, important situations at hand like improving our crisis infrastructure, implementing and using superior technology in areas of defense. And most importantly establish better economic reforms - for instance, allowing foreign companies to invest and hold shares in many of our private and public sectors like aviation, steel projects, railways, etc. to see faster growth.
- Invest more on schools and centers of learning, which will later give back to us a rich, educated youth force.
- Look at countries like the US, Israel, etc. who have a well planned and effective way to counter terror. India needs to adopt more ruthless ways of countering terrorism, learning form these countries, like better information gathering, improving Special Forces, sophisticated defense equipments, etc.
Thus terrorism and economic trends are two things which cannot be eliminated or controlled. But necessary measures can be taken to prevent them from causing havoc and moderate their impact. Terrorism begets economic downfall (for instance fall in tourists, travel and hotel industry, airline companies, etc.) and economic downfall begets job losses.
So what does all this mean to India? Well as I see it, we are falling into a deep chasm. We as a country must buckle up, and stand united against terrorism, and elect leaders who will be able to take a stern decision and not leaders who will squirm and cringe when the situation arises. We also need good economists as leaders who can see us through such economic crisis.
While this is a challenging time, I am confident of India coming out of this crisis with minimal impact (relatively speaking vis-à-vis other countries) - considering our huge domestic economy (which means less dependence on US and Europe); young and exuberant population and being amongst low cost producers globally.