global recession

To improve economic condition government has to be harsh on those businessmen who are hiking prices of their product to unreasonable extent to earn maximum profit. When prices will come down, demand will increase. When demand will go up, producers will be attracted to produce more and invest more. Resultant effect will be able to fight out recession.

Unfortunately government is simply focusing on reduction in interest rate or providing subsidy to selected sectors or waiving agricultural loans or giving relief to FII's so that they may not withdraw fund from India. It is pity that resultant effect of all measures taken by the government is almost dismal.

Inspite of several cut in interest rates by RBI, (CRR brought down from 9% to 5.5% , repo rate from 9% to 4.5%, SLR from 25% to 24%) banks are not in a position to lend as per whims of the government. Firstly they are not able to recover money from their existing borrowers due to non-cooperation from government and secondly there is no demand of credit, obviously sharp fall in sale figure and which is due to steep price hike in all commodities.

It is clear good borrowers hesitate to avail credit facility due to negative market and bad borrowers are not getting support from banks because banks are afraid of account becoming NPA. After all how much banks will conceal bad accounts and how long window dressing of bad accounts will help banks in survival?
For healthy growth of bank credit, recycling of fund is more important than reduction of lending rates

Similarly subsidy of any kind to exporters will be of no use until there is demand of Indian goods and services in other countries. When USA, Japan, UK and all importing nations are passing through their worst days of recession, how India can remain decoupled with this effect so far as fate of export and export related industries is concerned. This is why all types of subsidy and concession in interest rate is directly eaten by exporters. When condition of importing countries will improve, there will be automatic jump in exports, even without any kind of subsidy from government because businessmen earn huge profit in export transaction almost in all sectors.

It is worthwhile to mention here that when crude oil price went upto 150 US dollar per barrel, there was sharp rise in prices of all commodities including air fares. Now there has been sharp fall in crude oil price from above 150 to almost 35 US dollar per barrel. Is there equivalent fall in prices of all those commodities which went up due to rise in crude oil price? No will be the answer from all corners of the country.
Obviously when there is no rise in earning of consumers there will be shrinkage in demand when prices go up in the market. As such monitoring of price is more important.

Thirdly FII cannot remain here as long as they are in acute demand of money in their own country. The need of the hour is survival and not earning through stock market .FII’s in general have taken huge loans from lenders in their country without matching capacity to repay and without providing matching assets to their lenders. Obviously they have spoiled the fate of their lenders (which is now termed as Sub Prime Crisis) and repercussions of unhealthy lending in USA are now visible outside USA too because economy of most of the countries including India depend to a considerable extend on trade with USA.

As such government has to accord top priority on
Recovery of bank loans from willful defaulters
Strict control on prices of goods and services including fixation of interest rates on deposits and advances by banks.
Increase demand by providing maximum employment opportunity
Thrust on agriculture output and for this purpose Ministers should be advised to remain in villages when they are not needed in Parliament or Assemblies
Administration should be made corruption free and hassle free so that honest and sincere businessmen do not face difficulties at any level from licensing to bank credit to ultimate sale of products.
Remove unwanted freedom given to businessmen and unregulated powers given to enforcing agencies.
Stop such stimulus packages which are only for electoral gains only. Such temporary help instead of giving a boost to economy may create a wrong culture.
All focus should be on education, judiciary and creation of employment opportunities.

Danendra Jain
17thFeb. 2009