INDIA'S REVIVAL VIS-A-VIS AMERICAN ECONOMY

Just after and before the budget session, the Government of India’s Economic advisor as well as the Deputy Chairman of the planning commission in their various statements and interviews stated that though India’s economic parameter indicates possible upturn of economy yet it would not move on the faster tract till American and British economy revive from their recession. The question arises as to how bad or good the American economy is now? During my present trip to US I have tried to study the condition of the American economy and have been analysing how it is going to influence the economy of my home country. I found a dismal picture even now though many economist feel economy is slowly turning up for better. The application for H1 visa which were made in lakhs during last few years have come down to 36,000 from India against available quota of 60,000, currently during 2009.

It is not hearsay; it is the fact of broad daylight that American economy is still facing one of the worst down turn of the history. It is as bad as that of the great depression. The most people think it is worse because during that time no state was facing so much financial crunch as California is facing presently. Had California been a corporate entity it would have forced itself to declare as bankrupt. The situation is as bad that most people now hesitate to buy state bond even on premium. Warren buffet in his latest interview said that he is still optimist of the American economy. He, however, would not risk predicting a time and date. It may turn around within one and half years or take four years. But surely America would be back to normal power and prestige in near future. He would not hesitate even to buy value stock at 9000 Dow. Federal reserve said the American economy is doing better but admitted that health is not as much better as it expected .Legendary investor Warren Buffet’s expression is noteworthy : "The United States economy is now out of the emergency room and appears to be on a slow path to recovery,"

Recent data suggest economies of America and Europe are on mend but experts are not convinced that economies’ can stand on their own without crutches of Governmental massive help as yet. G. J. Sanghvi, a businessman friend of mine, from San Jose sent me a message last week that the American economy lost 467,000 jobs in June equal numbers in July and the unemployment rate edged up to 9.5% percent in a sobering indication that the most painful downturn since the Great Depression has yet to relinquish its hold. On July 5th the vice-president, Joe Biden, admitted that the White House had “misread how bad the economy was”. In January it had predicted that unemployment would peak at 9% without a fiscal stimulus and 8% with one. The $787 billion two-year stimulus is now law but unemployment stands at 9.5% and Barack Obama admitted. It has since dropped to 9.4% now in August.. The payments of stimulus money by government to enterprise have not been taken kindly by American people in general. They felt America being a capitalist country why the government should be allowed to be theowner of free enterprise. Some people have refused to buy cars of General motors for it has accepted Government money. In our country people expect everything from government. There is big difference in attitude of people in both the countries. Yet economies of both the countries are linked due to international trade effect. Even share markets have not yet been fully decoupled.

“The numbers are indicative of a continued, very severe recession” said Stuart G. Hoffman, chief economist at PNC Financial Services Group in Pittsburgh. “There’s nothing in here to show that the economy and the market are pulling out of the grip of recession.” Yet, I find stock market at Wall Street is moving ahead. It is good news for India for Indian stock market is coupled with Wall Street now. In India from a low of 13300 sensex it is moving forward now.
The $787 billion two-year stimulus is now law but unemployment stands at 9.4% ..I had the opportunity to read, at San Francisco, the latest monthly snapshot of the America’s job situation, released on Thursday (2nd July) by the Labor Department. It reinforced a consensus that high levels of unemployment are likely to remain for many months and perhaps years. That will almost surely increase the difficulties of finding work for millions of jobless people while limiting wages and working hours for those employed. I only hope the situation back home in our country don’t get effected so severely. For another month, manufacturing jobs disappeared, dipping by 136,000, while construction jobs shrank by 79,000 and retail by 21,000. Health care remained a rare bright spot, adding 21,000 jobs. Perhaps this is the only sector along with farming and Defense that is breathing easy.
The losses for June brought the tally of jobs shed since the beginning of the recession to 6.5 million — a figure equivalent to the net job gains over the previous nine years.
I want every sensible person to note the words of a famous economist of human resource and get set to plan for our own future to save ourselves from catastrophe. “This is the only recession since the Great Depression to wipe out all jobs growth from the previous business cycle,” Heidi Shierholz, an economist at the labor-oriented Economic Policy Institute in Washington, said in a research note. She called this fact “a devastating benchmark for the workers of this country and a testament to both the enormity of the current crisis and to the extreme weakness of jobs growth from 2000 to 2007.”
The figures for June did show signs that the pace of job losses is continuing to slow. From November to March — after the collapse of several prominent financial institutions — the labor market lost an average of 670,000 jobs each month. From April to June, the decline slowed to 436,000 a month.
Johan Maynard Keynes, once predicted ,as per Buffet, : "By a continuing process of inflation, governments can confiscate, secretly and unobserved, an important part of the wealth of their citizens. . . .The process engages all the hidden forces of economic law on the side of destruction, and does it in a manner which not one man in a million is able to diagnose." In India though official inflation is going down the price of essential commodities are getting higher and higher. Unless government can bring down fiscal deficit,debt and actual inflation there may be temporary revivial of economy but there would be turmoil in the country for consumption as most people would remain marginaly hungry.
Of course we cannot survive without hoping for the best. My own feeling was that the situation back home was not so severe and there bound to be smarter recovery in India Still I do not believe that growth rate of the country would be 7.5% during this fiscal. According to my calculations I feel that India will progress in the path of recovery surely but very slowly. The stock market which saw an upturn from 8000 point sensex to 15000 point is bound to go down, for some time now onward. It was euphoria that brought up the share market. The market can not sustain for long on the basis of euphoria unless fundamentals improve. The silver line for our country is the higher saving rate compared to Western economy. Our weakness is export which is greatly affected due to recession abroad. Early this year, the US administration projected that the unemployment rate would peak near 8 percent with the stimulus in place. But joblessness is already well above that target now. The condition of India will improve surely but at snail’s space till consumption pattern of USA improves and Job creation starts.
Now, millions of households in US owe more to the mortgage lender than their house is worth. Millions more have exhausted their credit. The paycheck has returned as the primary source of spending. Yet, as the June jobs report reinforced, paychecks are eroding even for those who have jobs. The situation back home is surely better than above. But this is the time we need to think of handling our finance with utmost caution.
Mr. Obama himself has proposed a budget-balancing rule that he would have to break to inject more stimuli. "We've begun to put the brakes on this recession and ... the worst may be behind us," Obama said in his weekly radio and Internet address Saturday. He cited recent Labor Department report that showed a dip in unemployment, but said, "We must do more than rescue our economy from this immediate crisis. We must rebuild it stronger than before."
One thing is certain the mood of everyone that matter in US is positive. Depending on this positive attitude share market is reflecting upturn move. India will run faster once US starts turning around. The question is when? It can be in fourteen months or may be in four years, only time would dictate. The revival of economy would be there surely!

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