As the world ushers in a new year, we have a simple advice: ignore the doomsayers, especially the economic forecasters. They got it all wrong in 2008, and this year too, they will go off the mark.
Already a dozen-odd countries — including Germany, Italy, Japan, Singapore and, of course, the United States — have slipped into recession, meaning their economies are now producing less than they did a year ago. The list is expected to grow — the International Monetary Fund predicts all of Europe slipping into recession this year.
Back home, industrial output saw a contraction in October, for the first time in 15 years, and chances are that the trend might run through the rest of 2009. The fear of job losses is getting real and the mood is turning gloomier by the day. But if you pause and look around, and you will find reason to cheer.
Through the first three quarters of 2008, the Indian economy averaged a growth rate of 8.1 per cent. The relative robustness gives our economy an envious cushion in the current crisis, making the world look to us — alongside other emerging economies like China — to lead the global economy to recovery.
Besides we have seen what has worked and what has not in the US and other countries battling the crisis, because we came under stress much after they did.
So, where do we go from here?
The advantage of hindsight tells us how not to spend money on bailing out those responsible for the crisis. That’s precisely what the US’s president elect Barack Obama is trying to push for, and that’s why despair appears to be giving way to hope now in that country.
Here too, the prescription won’t be much different.
We will need big-bang fiscal stimulus from the government to sustain the investment momentum, which determines how fast we grow. Some of it has already come and more should follow. More important, decisions must quickly translate into action.
In the first half of fiscal 2008-09, our investment rate was 39.6 per cent of the gross domestic product, which helped the economy grow 7.8 per cent during that period. With foreign funds drying up and shrinking profit margins of Indian companies, that investment rate may see a sharp fall. Which means, not only does the government step up its capital expenditure, but does so on labour-intensive projects such as roads, education, healthcare and rural enterprise. That will mean growth can be sustained at 6-7 per cent even
if, in the worst-case scenario, the investment rate falls to 30 per cent.
In short, this is an opportunity to bring on board people who were left out of the economic boom of the past one-and-half decades, and make them lead the recovery.
The trouble is files in the government will stop moving once national elections are announced in a couple of months, and thereafter, there won’t be a government until May or so. By the time a new government is in office, the year will be half-way through and the task before its leader even more formidable.
Will we get a leader, who can do an Obama here?
Let’s celebrate the new year with the hope that we will.