ECONOMIC SLOW DOWN- PART II
Our country has been following the path of savings driven growth. Domestic savings were tapped to create public investments because most of the domestic savings were invested in Banks/Financial institutions in the form of deposits. The equity cult was just about begining to grow. This money was lend to Government for funding public investment projects in infra structure like Power,Roads, Public utilities such as rural health,drinking water etc. Yes there were lot of deficiencies in the delivery. But there was growth modest by any standards, wrily commented as Hindu rate of growth. It was claimed once the shackles in the economy are removed, there will be unbridled growth. Controls were lifted and liberalisation was ushered in by late Narasimha Rao. It was claimed that private entrepreneurship will grow and poverty will be eradicated soon. The new age economy called Knowledge economy created new millionaires who invested nothing but human capital. This was again an arbitrage opportunity because, elsewhere the outsourced jobs cost more. This neo rich were darling of the media, powers that be. Narayana Murthis, Nilekenis, Premjis occupied more space than Tatas, Birlas and even Ambanis. This led to consumption driven economy because the neo rich fuelled demand for luxury and white goods. More cars, more airconditioners, more Refrigetors were sold in Indian market and MNCs set up shop to exploit this demand. Even though sub prime crisis either did not happen the effects were felt when ICICI and even companies like L& T reported losses in derivative investments.
Nobel prize winning economist Paul Kreugman has observed that the imbalances in current account of emerging economies of China, Brazil contributed to this financial mess since the surpluses were invested to off set deficits of US economy. When the sub prime crisis happened it washed away the surpluses in no time.
What does this signify?
Indian Banks follow a system of credit assessment called CMA. In this one portion is devoted for analysis of Balance Sheet. there exists a provision to deduct intangibles to arrive at tangible networth of a Company. These Intangibles could be anything from Copyrights, trade marks, patents, amortised expenditure balances, negative balance in Profit Loss account( pure business losses) but their value is never recognised to arrive at the networth. Economic growth is meaningful only when there is perceptible, tangible output. Growth in peripheral services like outsourcing are not real indicators of growth.
Celebrated business leader Lee Iacocoa observed that there is no recession in food business. Boom or downturn people always need to eat food. Let us respect our Farmers and help them. then we would have solved this problem
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