It’s not the speed that kills, it’s the sudden stop

As I had nothing much to do today I kept surfing endlessly until I happened to come across a lovely (though not at all encouraging) report on Indian Economic Outlook. As an economics enthusiast I got a real feed in times when I was at a fix whether to sleep or watch a stupid movie.

It talks about the Indian economy in the light of the extra ordinary global financial crisis which is now probably the worst economic downturn after “The Great Depression”. And to add to it this crisis came right when the Indian economy itself was slowing down. Could it have been any worse!

By now even those who know nothing about economics know that the crisis originated from the excessive lending by the commercial/investment banks (which can be traced back to Glass-Stegal Act), under pricing of risk and complete ignorance of regulatory policies. An atmosphere characterised by utter lack of confidence and the “Wall Street Crisis” turning into the “Main Street Crisis” and we still do not know when would the world or atleast India see the bottoming out.

The precariousness of the situation can be well understood if we just have a look at some of the facts released by the IMF which has been constantly reducing the GDP growth rate estimates of the world as well as the developing countries not to forget India too.

A few Horrendous Facts:

· Losses for financial institutions on account of US-based mortgage loans and securities may rise up to US$ 2.2 trillion (last estimate in October 2008 was US $ 1.4 trillion)

· Whopping US$ 7.5 trillion has been shelled out as a rescue plan by the Fed which is being termed as the manifestation of crony capitalism and a step towards a total collapse

· Forbes list of billionaires the total wealth registered was 2.4 trillion U.S. dollars, down from 4.4 trillion last year, marking the worst reading since Forbes began. (If this is with the richest what is it with the not so richest!!!)

· A GDP contraction has been revised from 0.5% in Nov ’08 to 2.0% in April ’09. And the worst is yet to come. (Does this mean the world will see an actual GDP contraction?)

· The exports of countries like Japan and Taiwan have reduced by 40%. (do I need to mention its implication for an export led economy)

To Add to it as usual there are a set of intellectuals who always come with an after event analysis. (No wonder it also serves as a straw to the drowning)

· Many of the financial crises have been seen to be preceded by bubbles in the housing market and huge bullish rally in the stock markets. On an average real housing prices

declined by 35 per cent over six years and the stock prices collapses average around

55 per cent recovering back to normal in more than three years.

· In terms of unemployment they found that the average slump to be around 7 % with recovery normally seen in four years.

· In regard to real GDP per capita they found that the contraction on average is around 9 per cent with an average two year recovery period

Now all this may or may not hold but it does give a broad picture of what might be in store for us.

For one thing I know is that IMF results have truly been increasing my probability of landing in the “no man’s land.”

In September ’08 they said economy would start recovering from April 09

Later in December 08 they expected it to happen by Dec 09 (Coincidently the time when I (we) am supposed to be placed)

Now they say economy would at best recover by Decemeber’2010!!!

Well now what am I supposed to do, or think, or plan. I guess I should start reading the “World Economic Outlook” instead of the “Indian Economic outlook” After all, as one of my professor says we are living in a globalized world and there are plenty of options available. We just need to concentrate & take care of the “CHANGING EXTERNAL ENVIRONMENT”