What is good about 2008 is that it’s finally coming to an end; and what is better about the year is that 2009 could be worse. That’s the latest doing the rounds on the SMS circuit. Perhaps, there couldn’t be a better description of what we saw of the Indian economy this past year.
The year opened with a roaring stock market and the seeming certainty of a third straight year with 9 per cent-plus growth. The mood was so upbeat that an initial public offering of shares from Reliance Power raised more funds in a single day than what the government collects in taxes in a year.
Then, the spoilers began to pour in.
Thanks to a global surge in commodity prices, especially of crude oil, the inflation rate climbed to an alarming double-digit rate by middle of the year, forcing Reserve Bank of India to raise interest rates to a level where few dared to borrow. New investments started to slow down, so did economic growth.
The deadliest blow fell in September with the collapse of iconic global banks like Lehman Brothers and Merrill Lynch that sent jitters across the world financial system and heightened the crisis to what is now said to be the worst since the Great Depression of 1929. Back home, banks, realty companies and all those whose economic fortune is linked to global markets, were hit so hard that they started cutting jobs. October saw the first contraction in industrial output in 15 years, and experts believe that trend might have continued through the following month.
But going back a little farther into 2008 would show that the year wasn’t as bad as it is made out to be. The economy still averaged 8.1 per cent growth in the first nine months; India added 100 million subscribers to become the world’s second largest mobile phone market, and unveiled the lakh-rupee Nano — the world’s cheapest car.
The most redeeming feature of India through 2008, though, was the global recognition of its regulatory bodies, especially Securities Exchange Board of India and Reserve Bank of India. Even as the stock market fell more than 50 per cent, there were no instances of fraud or systemic trouble. The same holds true for the country’s banks as well.
As the economy braces for more bumps in 2009, reinforcing these inherent strengths will be crucial to how fast, and how well, we can tide over the crisis.