Well so a lot has been happened since i wrote my last post. The global financial crisis due to which there are no surviving stand alone I- banks. The US presidential election and all the focus on what a particular nominee said 20 years ago. The signing of the nuclear deal. The communal violence , Delhi bomb lasts ... catching of the " master mind" and the following week another bomb blast. So what will i write about?
Well a little about everything.
So September 15, Lehman Brothers filed for chapter 11 bankruptcy, Merill lynch got taken over by BOA and in a few days AIG was " nationalized" , Washington mutual was taken over by JP Morgan, A 700 billion bailout plan was declaring for " nationalizing " US... 2.3 trillion by EU for itself..... Well the list is endless, But in all this people in India were always saying " We are insulated" from the global crises.
I for one beg to differ.
1.Firstly the reason that they give is that we were insulated during the Asian financial crisis of the 90's.
Now first of all. We only opened up our economy removing it of restrictions in 1991 ( in July our fiscal deficit had reached $69 billion a third of our GDP). At the time of financial crisis, we were still in the process of opening up. Our growth rate was still at 5 % . So technically we were not coupled with the world as such.
Secondly the reason for the Asian economic bubble was that in late 1980s as according to wikipedia was
" The economies of Southeast Asia in particular maintained high interest rates attractive to foreigninvestors looking for a high rate of return. As a result the region's economies received a large inflow of money and experienced a dramatic run-up in asset prices. At the same time, the regional economies of Thailand, Malaysia, Indonesia, Singapore, and South Korea experienced high growth rates, 8-12% GDP, in the late 1980s and early 1990s "
Now as opposed to this foreign investment in India was not encouraged as it is now. So the prime reason which led to the economic bubble of the Asian economies was not even a factor in India and hence India could not be affected.
2. The second reason why i feel that we are not insulated from financial crisis is that one of the main reason for 2003- 2007 bull run in our markets was the huge FII and FDI inflowls. Now these same institutions were facing liquidity crisis back in their home countries ( primarily US) and had to maintain margins. So where do they look for money? Obviously the emerging markets and that's us ( looking at 50 % fall in our indices how can anyone say that we are insulated.)
3. Our great performance for the past few years was basically because we were a knowledge powerhouse rather than a manufacturing powerhouse as China. Our companies provided the offshore facilities to many giants in US and Europe and made huge profits on the conversion rate. Due to this economic crisis, these very companies will be the first affected. Many of them are seeing their major customers being acquired or going bankrupt. This will lead to loss in revenue ( thought the dollar has appreciated a lot in last few weeks.)
4. Finally the great truth about money is that money travels. The world is facing a Major liquidity crisis. People don't want to lend and others don't have money to repay. There is shortage of loans, leading to a halt in growth of the companies. The companies who invested here are withdrawing the money at a rapid pace , leading to the weakening of rupee.
Though I agree that the fundamentals of our companies are strong. There books are not in bad shape. I also believe that we will weather this storm better than others and will come out bleeding much less than many others. But i don't think that we are insulated from global crises.
Well recently another thing which has been occupying the sound bytes has been the Presidential election of the United States. I must confess, this is the first time i am following the American democratic process. What amazes me is the way people judge a candidate more on his stand about various issues than from where he comes. Just thinking about it, I cannot help but wonder , do we actually see how the particular MP representing Us voted on a particular Bill. What are his views on reservation in colleges, smoking ban, communal violence or even how does he plan to tackle the problem of pot holed roads in his constituency? No we don't. How many of us even know who is the MP from our constituency.
This is the primary reason that all the politicians have been taking us for a ride ( here i am not saying the politicians in US don't do the same for their people) . And so we see parties not supporting each other on a development project because if it happens ... it will steal their mojo. The chief minister of a state canceling a rail factory in her state because it happens to be in the constituency of the leader of another party. A world class project is forced to shift because of short sightedness of the leader of opposition of that state.
What amazes me more is the way Obama has come up inspite of his back ground. Here we may say that we have had a woman president, a Muslim president, a lady prime minister. But we all know they were either the holders of a family legacy or were put up to shout about the " secular " Tag. It was much akin to how Palin was chosen as the Vice presidential nominee. But here is a person who truly rose battling all odds.
Well yesterday was the meeting of the national Integration commision. As usual nothing came out of it. The only thing that we can say for concrete which happened was the wasting of tax payers money. We have a peaceful community being threatened, burnt coaxed by the facist groups belonging to the majority community. The party close to the facists refuses to hear anything against them. The ruling government is terrified because banning the outfit ... they fear would mean alienating the majority vote. Everybody else keeps quiet because it doesnot affect them. I don't want to sound cynical .... but this is how taliban started in afghanistan in 1990s, the Nazi party started in germany ..... and it finally affected the very people who kept quiet.
I want to quote some lines by Pastor Martin Niemöller