Economic Depression 2008 and Indian Economy 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.
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.
As the eighties end and the nineties begin the inflationary trend started being converted into depressive trend in the developing economies 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.
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 columns pertaining to business and economy appearing in the Indian news papers from 1st to 12th of December 2008, make clear the present extent of depression and the steps taken to control the situation in Indian economy. It becomes clear from these columns 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.