Shrinking growth, a growing problem

Impending recession is a problem for the rest of the world. For India, it’s about sustaining growth.

A global economic turmoil is like a melee at a football goal post. It is not easy to see, but then, a picture does emerge. From all indications, while the rest of the world is staring into a recession — which no doubt will have an impact on India — the simple, stark fact is that our problem is not a crisis, but more of a scaling down of ambitions and a reorientation to sustain growth. As news rolled out of a $ 250 billion package by the US government to buy stakes in key banks to prevent them from collapse or chaos, a seemingly similar liquidity problem in India had a different angle. Here, the problem is about releasing credit to fuel expansion, save the rupee from undue volatility and managing overstretched sectors like aviation and real estate, where layoffs and delayed projects are causing social unrest.

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However, the verdict, sooner or later, is bound to be clear: India is a safe haven for investments and is still a major long-term global growth story. Depending on who one is talking to, growth in the current fiscal year could be anything between 7 and 9 per cent. But even the conservative numbers look decent enough. We could quibble on the following year, given some of the shaky sectors. But still hope to stay on top of the global race somewhere close to China.

The key point is that the Reserve Bank of India (RBI) has unleashed more than Rs 120,000 crore into the financial system from cash it had stored up by issuing bonds in the times when foreign money flooded India. This and other measures should soothe the caution-driven logjam in lending to help economic expansion. That does not hide the slowdown warts in sectors such as manufacturing, airlines or real estate — or the undercurrent of inflation and the ramifications of loan write-offs or Pay Commission dues to government employees on the government’s budget. But the overwhelming positive factors include robust growth in sectors like telecoms and a sound monsoon that is helping agriculture. While there are still bumps ahead, the basic stability of India’s banking system does augur well amid a global powershift in financial management.