India unscathed from recession: reality or myth?

Indian government seems to be patting itself on the back for the nice work they think they have done by maneuvering the Indian economy out of recession. The general mood seems to be positive, rate of GDP growth still remains positive despite of increasing pressures, job cuts have remained well under control, lending activity has resumed, there is enough liquidity in the market. Everything appears to be rosy.

However, if we just stop appraising these macro level indicators for a minute, and look deeper into the micro ones, we see that the picture does not appear to be as rosy as it seems. Despite of a not-so-significant effect on the economy at large, the recent economic recession has left millions of people poor, jobless and in a much dire situation than they were in before.

It has been a long-standing tactic for economists and officials to juggle with numbers and downplay the effect of any phenomenon. We also get misguided by all this number crunching and do not look beyond the obvious. Time and again, we hear economists say that only 2% of the population has been affected by recession. Now, 2% might sound meager, but if we look at the bigger picture, 2% of Indian population could mean 20 million people. That is a huge number. It should ring alarm bells in the ears of any concerned government.

According to a report, in 2009, 14 million people became poor because of the dip in the GDP growth rate. This translates into more unemployment, less production, more crimes and the list goes on. Moreover, it does not stop there, the spiraling effect continues with no signs of stopping within the next year or so.

Exports, which form a small percentage of GDP, were badly hit by economic recession. In fact, export and financial sector (read NBFCs) were the most badly hit sectors, and had to be helped out by providing economic stimulus.

Had it not been for the defacto conservative polices of Indian banks not to have too much financial exposure to global finance, India could have suffered drastically. It is only for the Indian public sector banks, who have had a cautious policy towards exposing themselves to global finance that our industries and corporates are getting their short term financial needs met.

Besides job losses, a major repercussion of the economic downturn has been rising inflation and food prices which is still continuing and the government is having a tough time reining it. The common man has been badly hit by rising food prices. Many a people who were not fired were switched to a lower profile with lower wages, and had to make do with it given the dismal job market. So it proved to be a double whammy for them, rising pricing coupled with lower wages.

People lost a lot of money in stock markets after the sub prime crisis hit. And much to the mutual fund companies’ chagrin, investors started pulling out money in what could be called a panic attack, which again exacerbated the already debilitating effect of the crisis. Also adding to it was the massive pull out of FII funds from the Indian stock markets.

It will certainly take time for us to get back on the growth trajectory. Also, government should not lose sight of its vision of all inclusive growth and should focus on areas which have been long neglected like agriculture and manufacturing.

India is still a service economy, which is largely dependent on offshore activities. Until we reduce this dependency, we will be always at risk of upheavals that could be caused by a crisis like this one. We have our lessons learned from the recession and repeating mistakes could be fatal.