OpEd: It’s Not That Bad

By M H Ahssan

Just give the economy a push to stop it from slowing

Going by the Sensex, investor sentiment is down thanks to feeble global cues. There’s other bad news. Export growth entered negative territory, falling 12.1 per cent in October. That means the $200 billion export target for 2008-09 looks a tall order. Sales of cars and two-wheelers slid massively, with market leader Maruti Suzuki registering a 27 per cent fall in domestic sales. Recently, some auto majors had announced production cuts or closure of plants. With sectors like realty postponing projects, retail hit by sagging consumer spending and small and medium industries reeling from credit scarcity, it might look as if doomsayers uttering the dreaded R-word — recession — have a point.

Far from it. India is nowhere near a recession which implies GDP contraction over two successive quarters. At a time of global economic slump, it remains, along with China, among the world’s relatively better economic performers. That would hold even with downward revisions of growth figures. An export slide was expected given the demand crunch at home and abroad. The current account deficit may be strained, but let’s factor in that imports are falling as well. Add the persisting global slide in oil prices and the outlook isn’t as grim compared to the economic mayhem in other parts of the planet. India may not be decoupled from the world crisis, but there’s no reason for panic.

The government has instruments to revive economic sentiment, including cuts in taxes and excise duty. Further RBI rate cuts will boost credit and consumption, lubricating banks that are still risk-averse. If a favourable business climate is created, export-oriented sectors such as textiles could turn to a domestic market with boosted spending powers. Lower fuel prices are another mood-enhancer. State-run oil marketing firms are reportedly making profits. That dilutes the main official argument against price cuts. Any future output cut by the oil cartel OPEC shouldn’t serve as yet another excuse to put off a decision. On its part, Air India has opted to make flying cheaper by reducing fuel surcharge. Private players, equal beneficiaries of lower aviation turbine fuel prices, must follow.

India has seen huge capital flight, but new FIIs have also registered in recent months. As for FDI, some sectoral caps could be reviewed and disinvestment revived to energise the capital market. India’s economy has comfort zones China would envy. Domestic demand-driven, it is less beholden to exports and imports. With well-designed stimuli, the growth momentum can be maintained. One ace is a high savings rate, the bedrock of domestic investment. Another is agriculture, expected to perform well in 2008-09. As for being terror-hit, India knows the damage is heavy but probably short-term.