I am not an economist, nor an expert in finance management of the government. I however try to project my feelings. Liquidity crisis or Sub Prime Crisis occurred in USA and other European countries. How did it affect Indian economy in the year 2008 which forced Indian Government to sanction stimulus package in line with what Obama did in USA.I am unable to understand it. Can anyone help me?

I came to know that since FII were withdrawing money from stock market, India’s economy has been shaken. It means our great miracle economy of the world depends on FII fund and survives due to FII fund.

Some intelligent persons tell that due to financial problems in USA, they had blocked payment of exports made by Indian businessmen. This resulted in liquidity crisis in many countries. Some says that export of goods has suffered a lot.

Is it true that export proceeds of goods exported to USA or any other countries were stopped by importing countries?

If not how did it result in liquidity crisis? When foreign countries stop import, real problem may arise in selling exportable goods in domestic market.

If export proceeds were really stopped by importing nations like USA, government could have been justified in sanctioning financial package for such affected exporters or manufacturers, but not justified in allowing benefit to all.

CRR and SLR were reduced to release liquidity for banks. Is it justified to provide such liquidity (interest free fund) to all banks whether they were associated with affected exporters or manufacturers or not?

Even if it is considered that release of liquidity or relaxation in tax in general without discriminating the real victim of said sub prime crisis of USA was justified, the matter of vital concern is whether government has ensured that affected units have actually benefited in any way from the said stimulus package.

Has government ensured that domestic demand of exportable goods has been created to compensate loss caused due to stoppage of exports?

If domestic demand has not increased, how the said affected units have utilized the stimulus package and how they could maintain the same turnover as they used to exhibit through export proceeds?

Has government tried to ascertain the proportion of stimulus package released for banks used for growth of manufacturing or export sector and what proportion invested in MF or parked in RBI at Repo rate to earn interest or dividend?

Is it not true that excess of fund provided to business units, traders, manufacturers and exporters resulted in huge hoarding, black-marketing and abnormal profit making?

If it is true, government should admit that the current price rise is nothing but the making of the government.

Income of poor people did not rise but prices showed relentlessly rise and this resulted in considerable erosion in purchasing capacity of poor and middleclass families. As a result demand of the consumer goods at grass root level has sharply come down.

Had the government avoided stimulus package, the exportable goods could have come in the domestic price at reasonable price and demand could have gone up to a considerable height and the end result could have given a boost to manufacturers and traders.

Further the government could have used the fund released through stimulus package in carrying out additional public investment to create additional demand and additional employment opportunities.

If there is a little bit relevance in points raised by me I think government should not hesitate in withdrawing stimulus package in gradual and comfortable manner. This will help in combating inflation and ease the burden of poor to a good extent.

If liquidity from banks is withdrawn, banks will not invest in MF, will not park surplus fund in RBI to earn interest at repo rate and at least not opt for sub-PLR lending to corporate or to real estate sector which benefits none other than upper class of the society.

Banks will be forced to mobilize deposit at some higher rate which will benefit poor and middle class families and pensioners to a greater extent. If lending rate to corporate goes a little bit higher, if rate for housing loan or loan for car goes higher I am very much confident and the experience of pre-reformation era reaffirms my belief that sale of these luxurious goods will not come down and neither nay corporate sector will stop their activities on account of little rise in borrowing rates.

It is ironical that the government which is talking of social inclusion to attract Indian voters is also talking of merger of banks or infusion of fresh capital into PSU banks to enable them to compete with global banks which caused crisis in USA and other countries. When they plead consolidation of banks in raising exposure limit of the banks they perhaps forget the interest of common men or the issue of social inclusion.

Can I conclude now that the fear of global recession in India was artificial and virtual and maintenance of growth rate achieved by dint of the said stimulus package is also imaginary, unreal and willful exaggerated to hide the faulty policy and faulty execution of government’s good policies?

Danendra Jain

Ganaraj Choumuhani

Agartala 799001