Thursday, March 5, 2009

Who should we thank now?

There is no doubt that the global recession is worsening day by day. Some banks in the US and Europe have filed for bankruptcy and many are on the verge of it. The recession has had a domino effect and countries across the world have felt the pinch. Asian countries like China and India, which were praised for their fast economic growth, have failed miserably this time around. A simple example to show what the current scenario is like: During the heydays, the entire world was sitting pretty on top of a Tsunami wave not knowing what is about to come. Now, after the wave shattered, everybody on top got shattered as well.
This makes me think, Is India very badly effected?

Leading economists across the world wasted no time in giving us different sorts of predictions about when the world will get out of this mess. A few of the optimistic lot feel that by the end of 2010 we should be back to normal. The pessimistic economists on the other hand feel that the worst is yet to come. When I read their columns in the newspapers, I get confused.
I have an opinion that India has not been effected by the recession to an extent that it could have. This can be attributed to the stringent measures taken by the RBI under Dr. Y.V Reddy. Nobel economist Joseph Stiglitz recently said that if America had a central bank chief like Y.V Reddy, the US economy would not have been in such a mess. His other measures like increasing key interest rates periodically also helped in stabilizing the economy. In contrast, his counterpart in USA kept the key rates low enough to keep the subprime bubble developing. Even today the interest rates in the US are being reduced to near zero levels. During his tenure as the governor of the RBI, he took a number of measures so that Indian real estate market stays healthy. He put a number of checks on banks to de-risk their exposure from the property sector, including increasing the risk weightage for the bank’s lending to the realty sector. He was one of the few people who could see the ill effects of directly lending money to real estate firms. We can clearly see the consequences. Share prices of the realty firms have plummeted within one year. DLF, UNITECH, SOBHA developers and many other realty sector firms have seen the red for the past one year.

There is more. I think we should also thank the Left government for tirelessly keeping the economic policies of the finance minister under check. Preventing the government from allowing FDI in various sectors is a big achievement for the Left parties.
Just imagine what would have happened if there was FDI in Agro-sector, the retail-sector and so on. The consequences would have been far more serious. Farmers commiting suicides to unemployment being created in the retail sector are just the big icebergs that our TITANIC ship has averted.

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