Thursday, August 11, 2011

Friday’s Fury a Global Worry

The last Friday’s release definitely was an instant hit. The only concern was it neither made money nor fans but triggered a fear of double dip recession. The American economic hegemony saw its downturn. The huge debt crisis, despite which it has been trying to grow, saw the first hurdle post its 2008 recovery. Although the political system agreed to increase the debt limit up to $4trillion but in the process they have created a confidence loss for investors. S&P downgrades debt rating of US for the first time in history.
Market economy had a flip side to it, which was less talked about by the economists. Adam smith credited the free market mechanism to the invisible hands of market, projecting a hopeful picture of growth and recovery. This hopeful picture might be the reason why economic super powers like US went for deficit financing as a regular measure to run the government and public finances. In a free market, deficit financing increased the depth of the debt trouble and the wide gap is visible only now. US have been running in huge deficit gap for the past decade. Creating worries for the investors. The only faithful instrument being the US treasury bills which has attracted the investors. After today’s downgrading it is implied that these US treasury bills also carry risk with them, hence creating a worry for investors.
Definitely much macro-economic perspective would be the order of the day in coming days. But looking closely what it holds as a lesson for India or for any Individual. It boils down to the fact “ If you live on credit without paying back then with time your interest increases much high than your credit amount that leads you to default the payment.” This defaulting when continues for much longer period creates a crisis and so on.
How to come out of the crisis?
There are some very fundamental suggestions that can be practiced:-
·         Primary Consumption based product manufacturing: Private consumption is one sector that has largest share in GDP of India. It means that maximum of our population are still at the first step of Maslow’s need hierarchy of basic needs i.e. primary needs of survival. If the food, cloth, housing sectors are given a push integrating with agricultural progress. We can possibly increase spending of population. Increased spending on private consumption is proportional to the per capita earning of individuals. It is disparity in incomes that creates a mismatch in our country. Still an increase in this sector would allow money to flow in the market at all income levels.

·         Moderate profit margin based practices: When we need people with funds to float their money in crucial time. Our assumption of long term benefit and affordable schemes can prove to be beneficial in the purpose. The industry with high profit margins in long term loose the growth path as they meet with saturation in demand. A moderate margin can increase the consumer base and thus include larger section of population. Thus giving market participation to many who still to benefit from market.

·         Infrastructure creation and maintenance: As in a family parents think about their children and their future. When the children grow up to become parent they thing about the future of their children. Looking at the analogy, we should create infrastructure future ready and maintain the existing infrastructure at upgradable levels. Infrastructure can be of roads, electricity, communication network, IT or other services etc. Better would be a private participation and opportunity to many than single conglomerate agency. This could also add up to new employment opportunity at skilled worker level and other levels.

·         Developing Domestic market specially capital market: At present very little number of people from the total earning population participate in capital market. It is visible that market is run by sentiments of the stock market. If maximum number of people utilise the opportunity at capital market, then domestic market sentiments can easily be judged by capital market. A better forecasting can be done and the dynamicity can be predicted much closely. Here comes the opportunity for capital market players to design proposals to target larger section of consumers to benefit organization, market and economy.

·         Welfare mode to regulatory mode of governance: Post Liberalisation era government addressed more of social sectorial needs leaving the other sectors for private players and MNC. In today’s time it is realised that government social benefit schemes is not a Fit for all solution. Diverse region, economy and natural region possess challenge to success of the schemes. Corporate Social Responsibilities is seen as a newer area where government is keen to create a mandate. It would be much better if social sector is also open to private player which would ultimately provide flexibility and development at a fast pace. Government can take the function of regulatory bodies overlooking the legal, jurisdictional and competitive aspect of the player. It would help in reducing the government spending and more transparent auditing of the process.
These methods as an immediate response would help to design a long term plans for the economy, even create a fundamental base of development in the whole country. A successful economy can be gauged by the value principal of survival, growth and profits. The global threats of market crisis can be faced with strong domestic economy. The major challenge remains to integrate the state wide economy to national economy to remove the disparity of regions. The opportunity are plenty it is only time which can predict new economy emerging from the global challenges.
A pragmatic analysis by Abhilash Mohapatra. The next few weeks would be interesting to keep a watch on. For more details, you can mail at

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