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Depression 2008: the Indian Scene

INTRODUCTION

Whatever the silence or the contradicting comments be coming from the Indian government and its leading economists, the start of eroding effects of world depression 2008 in India can not be overlooked since the depression stands well entered in the Indian economy. The economic activities like the decision regarding closure of Tata’s Jamshedpur motors plant for three days, decision of Ashok Leyland to run only for three days a week for coming two months, decreasing interest rates, decrease in CRR, lowered REPO rate, cut in SLR, index of stock market in reverse gear, Rs 275000 crores (Rs 2750 billion) released by the Reserve Bank of India (RBI) to help industries and investors etc. already indicated and rather proved well in the first week of November 2008 that RBI and the Government accepted the entrance of depression 2008 in the Indian economy.

PRE-DEPRESSION SITUATION

After getting independence in 1947 India started its planned economic development in 1951 having in hands the experience, a wide literature of well proved strategies and variegated plans pertaining to, used by and created or formulated by the well developed western economies, apart from the available natural resources. India was over enthusiastic and over ambitious on account of having the ready and well proved weapons sought from the western world for combating the problem of development. Therefore, instead of starting from the very beginning and covering the whole path it, being enticed and allured by the surprisingly fascinating fruits of industrialization, started efforts but having longed for being developed and grabbing fruits thereof in a haste. Thus India lost sequences in its development path. It ignored agriculture that was the spine of the economy. Thereby the agricultural development lagged far behind the level required for feeding India’s industrialization up to the mark. Agriculture based small and cottage industries became shattered and the villages became ruined. This raised a huge bulk of unemployed people in the widely spread rural sector.

The unemployed persons started migrating to the urban areas in search of job. The urban development and industrialization there had not sufficient level to absorb the whole migrating mass and to provide them proper urban life facilities. As a result thereof a mushroom growth of slums came about fast which eventually turned into big slum spots in cities and towns within a no longer period of 20 or 25 years. This hampered urban growth and urban life. On the other hand, in rural areas there emerged acute shortage of energetic workforce, service centres, infrastructure, intellectuals etc. This hindered the rural development whereby agricultural development and rural life remained slang lower. That is why, even having travelled a long path of planned economic development, the state of affairs of rural India still remained almost the same as it had been before planning. There remained a big gulf between urban and rural people regarding wealth, wage, education and income. Moreover, the rural-urban migration, due to the pitiable state of affairs in rural areas, resulted to unchecked urban growth. Thus, instead of overall development, an unbalanced and unfair development of Indian economy became resulted therein.

 However, the Central Government tried to make the situation better by initiating the process of economic reforms in 1991. But, unfortunately, the formulation of this process was on almost the same footings as those of the Five Year Plans and, therefore, this also could not bring about the desired change. Consequently a wide spread general unemployment prevailed in both the rural and the urban areas {as per ECONOMIC APPRAISAL 2006-07, the estimated number of unemployed persons rose from 7.98 million in 1983 to 9.02 million in 1993-94, to 10.51 million in 1999-2000 and to 13.10 million in 2004-05. These figures make amply clear that the average increase per year in the number of unemployed persons was going higher and higher without revealing any effect even of the economic reforms initiated in 1991. The average increase per year in the number of unemployed persons was 1.04 lakh (0.104 million) persons during the ten years’ period from 1983 to 1993-94. It became 2.48 lakh (0.248 milliom) during the next six years’ period and rose to 5.18 lakh (o.518 million) during the five years’ period from 1999-2000 to 2004-05.}. In addition to this a considerable number of politically, socially and economically sound and effective elites emerged in cities and urban towns. These elites interfered in the formulation and execution of development plans, on one hand, and in the fixation of priorities, on the other. Thereby Indian development plans became urban oriented and concentrating on rich minority. Thus the poor majority and the rural economy became ignored. The unemployment situation in both the rural and the urban sectors became almost uncontrollable. The government has become politically weak. Therefore its priority has become to please the rich minority so that it may run. To mitigate resentment and dissatisfaction among the general mass it has to play pseudo role to remedy some times the rural and some times the urban mass alternating through various unsuccessful employment programmes and plans. The condition of the rural unemployment is more embarrassing than that of the urban unemployment since the rural unemployed people are subsisting in privation.

The increasing inequality in income distribution and persistent lack of capital in India like other developing economies became more rigorous on account of the black money. Therefore, the Indian economy had been but experiencing inflationary pressure up to the late eighties on account of heavy autonomous (unproductive) investment in welfare and employment schemes (apart from that in infrastructure) by the governments being dependent on foreign aid, World Bank financing, external debts and deficit financing.

EMERGENCE OF DEPRESSION

 As the eighties end and the nineties begin the inflationary trend started being converted into depressive trend in the developing economies also on account of the following events.

(i) A considerable part of black money came out and became converted into white money on account of various schemes, moves and drives to convert black money into white. It was added to productive investment and whereby an increased supply in the market came about. Though employment also was thereby increased to add to the demand but lesser was added to demand than to supply due to highly unequal income. d

(ii) Under the process of globalization MNCs were allowed to enter  the economy. The MNCs made heavy productive investments and thus considerably added to the total supply in the markets but the thereby increased employment could not equally add to the total demand because a considerable part of their production value (revenue) went to their respective mother countries in the form of profits. Moreover these MNCs kept considerable part of their revenue in the form of undistributed profit deposited generally in the foreign banks.

(iii) The expansion of share markets took impetus in developing economies in the middle of nineties on account of some small scams and computerization of stock exchanges. However, a big scam always creates uncertainty in stock exchange activities and therefore harms the share market. But, contrarily, small scams always help increase the stock exchange activities because small scams create small but frequent ups and downs in share prices.

(iv) The globalization made the access of the depression stricken developed economies easy to the Indian markets. Therefore, the gluts of consumer goods started being dumped there. The goods produced in developed economies are of better quality and cheaper (on account of lower production cost) and the consumption of the Indian mass is highly conspicuous. These two factors attracted the Indian consumers towards those dumped goods so much that the demand of consumption goods pertaining to India’s home production became lost up to a considerable level.

THE PRESENT SITUATION

Each of the events discussed hereinabove contributed towards increasing the supply but decreasing the demand of consumption goods in the Indian economy. The combined effect of these events made a considerable change whereby up to the mid of year 2008 the Indian economy came into the grip of depressive trend in its markets other than the market pertaining to basic consumption items. The market of basic consumption items is still showing high prices and inflationary pressure. This is because the depression starting from financial and industrial giants will take some time in trickling to trade and medium or small industries of general consumption items. The downward trickling of the depression will gain impetus as soon as heavy retrenchment starts in the depression stricken giants.      

The following detail, prepared on the basis of columns in the news papers from 1st to 8th of December 2008, makes it amply clear the present extent of depression and the steps taken to control the situation in Indian economy.

(1)Stop production in Telco Construction: One more company of Tata Group, Telco Construction Equipment Co. Ltd. (TELCON) declared to stop production for four days (from 4th to 7th Dec.) in its Jamshedpur plant. This company has experienced a 50 % decrease in its production during last one and a half month. Mr. Ramchandra, President of the Telcon Workers Union, told that the plant has observed ‘block closer’ (stop production) two times in the last one month. Moreover, the Diesel Engine manufacturing company of joint ownership of Tata Group also exercised block closer for 5 days in the last week. India’s leading commercial vehicle manufacturing company, Mahindra and Mahindra, experienced a fall in the sale of its vehicles from 18583 vehicles in November 2007 to 11569 vehicles in November 2008. The total sale in the last year was 17844 vehicles which fell down to 10430 vehicles this year. The second biggest passenger car manufacturing company in India, the Hyundai Motor India Ltd., also experienced a 23.3 % decrease in its sale in home market in the month of November 2008 as compared to that in the month of November 2007. The home market sale in November 2008 is 14605 cars as against 19052 cars in November 2007 (Hindustan, Hindi Daily, Dt. 03.12.2008, Page 13, Baghpat Edition).

(2)Tata Motors has again decided to close its Pune plant for three days, from 5th to 7th of December 2008.. It is second time in the last fortnight that the company has decided to stop production (Hindustan, Hindi Daily, Dt. 04.12.2008, Page 13, Baghpat Edition).

(3)During the week ending on 22nd of November the inflation rate fell down 0.44 point and came to 8.40 % as it was 8.84 % in the week ended on 15th of November. The inflation rate in the week ended on 2nd of August this year was 12.91 % that was the highest inflation rate observed in last 16 years (Hindustan, Hindi Daily, Dt. 05.12.2008, Page 13, Baghpat Edition).

         (4)The second biggest car company in India, Hyundai Motor India Ltd., decided to sell its popular model, SANTRO GL (Solid) model, at 10 years old price of Rs 2.99 lakh (Rs o.299 million) for coming 10 days. A relaxation worth Rs 15,773 in the form of free insurance and accessories is being given in non-AC segment. Relaxation worth Rs 26,000 on SANTRO GLS model and from Rs 7,000 to Rs 25,000 on GATZ, Accent and Verna models is being provided. India’s biggest car company, Maruti, has already started giving discount from Rs 15,000 to Rs 35,000 on its cars. Moreover, the General Motors has made discount worth Rs 58,000 on SPARK. A discount worth Rs 90,000 on FORD FIESTA is being given. Tata Motors also is giving relaxation on its cars from Rs 20,000 to Rs 30,000 (Dainik Jagran, Hindi Daily) Dt. O5.12.2008, Page 13, Baghpat Edition).

(5)Mr. G. K. Pillai, Commerce Secretary, stated on Wednesday, December 6, 2008, that a budgetary help worth Rs 150 billion (Rs fifteen thousand crores) would be given to infrastructure projects while a help worth Rs 20 billion (Rs two thousand crores) would be extended to the depression stricken exporters. First time in a period of last ten years there has been observed a decrease of 12 % in Indian export business. As per the government survey of 121 export oriented units, 65 thousand jobs have been cut during last three months. Seven thousand jobs stand cancelled in cloth sector and this figure may reach to 1.2 million (twelve lakhs) up to the end of the current financial year. On account of realizing the depressive pressure in the economy, the Indian government has declared a decrease of Rs 5 in petrol prices and Rs 3 in diesel prices (Hindustan, Hindi Daily, Dt. 06.12.2008, Page 13, Baghpat Edition).

(6)Under the heading ‘Recession Trickles to India’ there has been stated “After years of being blamed for job losses in America and elsewhere, domestic high-tech companies and outsourcing firms are going through a downturn of there own. The global showdown id forcing them to reduce hiring, freeze salaries, postpone investment and lay off software programmers and call centre operators.” The country has been suffering from the effects of global slump, losing capital as Western investors fled to the security of American Treasuries, undermining Indian banks and company balance sheets. Satyam Computer Services slashed its recruitment plan to fewer than 10,000 from 15,000. Some companies, having hired recruits, are postponing their start dates. Wipro has dismissed 2.5 per cent of its work force in the second quarter. American Express laid off some 200 of its 6,000 workers in India and Goldman Sachs announced last month (November) to dismiss about 10 % of its work force in India (Hindustan Times, English Daily, Dt. 06.12.2008, Page 17).  

(7)A third block closer (stop production) within a period of mere one month has been declared by India’s biggest vehicle manufacturing company, Tata Motors, in its Jamshedpur plant from 8th to 13th of December 2008 in succession to its already observed second block closer from 5th to 7th December. In addition to it, the leading diesel engine manufacturing company Tata Cummins, a company of Tata’s joint ownership, is observing a six days block closer in its Jamshedpur plant from Saturday, the 6th instant. This is its second block closer as the first was from 26th to 29th of November. SBI has declared a special loan facility of Rs 110 billion (Rs 11000 crore) to help housing and small industries. RBI has decreased the REPO rate from 7.5 to 6.5 % and the Reverse REPO rate from 6 to 5 %. Yes Bank has declared a cut of 0.5 % in PLR while ICICI Bank has declared a cut of 1.5 % in PLR and BPLR (Hindustan, Hindi Daily, Dt. 07.12.2008, Page 1 & 13, Baghpat Edition).     

(8)Mr. Sameer chopra, President, BPO Industry Association of India, told that America and Europe, on account of the wage cut policy of companies and to combat the market slump, are thinking of stepping back in near future from alternatives like outsourcing. If this happens the Indian companies will be most affected negatively since most of the Indian software companies depend on America and Europe for business. Thus the jobs of 0.25 million (2.5 lakhs) persons, working in Indian BPO sector, are under threat of the global depression and they may lose their jobs in the first quarter of the next year (Dainik Jagran, Hindi Daily, Dt. O7.12.2008, Page 16, Baghpat Edition).

 (9)To control the continuously increasing prices and to rescue the economy from depression grip, the Central Government of India declared yesterday, the 7th of December 2008, a bailout package worth Rs 30 Kharab (Rs 3000 billion) (Hindustan, Hindi Daily, Dt. 08.12.2008, Front Page, Baghpat Edition).

CONCLUSION

The above mentioned detail shows that the remedial measures, being taken to control depression in the Indian economy, are the same and on the same line as those taken by America and European countries. India had also committed the mistake of using as well the tools proved fruitful in the western world, in case of economic development move. I think, in case of combating the depression 2008, India will again repeat the mistake of using the same tools which the western world is using without getting success in controlling the depression. Therefore, India should recognize the difference of its economic features as compared to America and the European countries and find compatible ways and means to control and combat the depression 2008.