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K Seshadri
There is a silver lining in the current global turmoil for India. Global investors fleeing from other Asian tiger countries would now find merit in India as the destination for their portfolio and foreign direct investments (FDIs). And the changed economic situation all over the globe would end up diminishing the importance of the rather harsh rating assigned to the country by global rating agencies. But all this does not distract one from the inherent problems.
The currency crisis has brought to centrestage trade capabilities of each country. For India, the trade performance continues to deteriorate. In the first four months of the current fiscal, there has been a 3.77 per cent decline in exports. Exports during April-July 1998 stood at $10.617 billion, compared with $11.033 billion in the previous corresponding period. In contrast, imports have picked up by 8.26 per cent. Total imports amounted to $13.922 billion, resulting in $3.304 billion trade gap.
Unlike the Asian tigers, the country has failed tobuild a strong export base, the result of which will be felt increasingly in the immediate future. The trade gap for the same period last year was only $1.826 billion. The drop in global prices of petroleum and crude must have helped contain the trade gap. Imports of these products were down 31.27 per cent at $2.653 billion. The non-oil imports recorded a growth of 18.54 per cent. The figures for July 1998 indicate that exports have registered a 7.7 per cent growth over the previous corresponding period. Imports, on the other hand, have shot up by 18.7 per cent.
On the Russian front we have a clearer picture now. Clinton has expressed nothing more than a moral helping hand, and the exact direction in which the Russians will decide to handle their problem has not emerged as yet. In any case it looks like the German, European and American lenders will have to bear the losses arising from their exposures.
The European markets are currently absorbing this shock. As for the US market, the Russian mishap onlyproved to be an excuse for a long overdue correction of overvalued assets. While nothing much can be done to salvage the Russian loss, the US is now more concerned about preserving investor confidence. For if that is lost, it could end kicking up a chain of negative reactions in the economy.
In any case, it is too early to judge if the correction in the Dow Jones Index is technical or is it the beginning of a new bear phase. The worry is serious as US' neighbours i.e, Mexico, Argentina and Brazil, are great commodity exporters. And their economies are likely to be strained due to an expected downturn in global commodity prices.
What happens in the US will have considerable implications for the Indian stock markets. If US investors decide to park their savings in fixed-income securities, there would be less funds available globally. This could rob the advantage India has currently gained as a preferable investment destination.
The Hong Kong economy has slowed down and Malaysia has raised the level ofstate intervention in financial markets. In Hong Kong the government is supporting stock prices. So, global fund managers are now forced to search for alternative and better destinations. India is relatively unscathed. Incidentally, state intervention is now coming to be accepted globally as a measure to protect the markets in times of global turmoil.
There is no doubt about the fact that the growth rate of the Indian economy has slowed down, but there is a good chance that the country would be able to post a 6 per cent gross domestic product (GDP) growth in the current fiscal. A growth rate of 2.5 per cent to 3 per cent in agriculture, 5 per cent in the industrial sector and another 9 per cent in the services sector should make this target achievable.
On the fiscal front, the Samadhan scheme to recover a portion of the Rs 30,000 crore locked up in tax litigation should help the revenue side. As for tax collections from excise duties, Sinha has claimed that since the budget was presented late, its impactis yet to be felt. Only time will tell if he is right. But in the meanwhile, the government's decision to empower the Disinvestment Commission makes one hopeful that the government's chances of mobilising around Rs 5,000 crore from public sector unit (PSU) disinvestment have brightened.
The other good news is that of prime minister setting up advisory councils consisting of experts as well as industry captains. What we see here is Vajpayee's attempt to escape from being bogged down by bureaucratic inaction and lack of commitment and initiative. This, I think, is an important move. It is through the media and an experimental step towards the presidential form of governing. It is now quite obvious that the bureaucracy in the country is becoming stronger, and not necessarily for the benefit of the country. This has become easier with frequent changes in political leadership. It is time political leadership frees itself from the clutches of bureaucracy.
On the other hand, one has to wait and see if thegovernment would listen to what the industry leaders have to say. The Punjab and Haryana Chamber of Commerce has repeatedly pointed out that the centre needs to curtail its expenditure and shore up the fiscal side. This plea has fallen on deaf ears. One wonders if things will be any different now. Yes, there could be much room for interaction on industrial growth and that is welcome. Stock markets have moved up substantially on Friday. But on the whole it appears to be a game of punters rushing to a few counters.
Stock trading has unfortunately boiled down to speculation and speculative groups with money power. The common man can make neither much sense nor any money from such moves. Only signs of sustained economic growth can make the market broadbased and invite large public participation.
Copyright © 1998 Indian Express Newspapers (Bombay) Ltd.
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This story was printed from Net Express located at http://www.expressindia.com. Net Express provides a portal to India, with news from The Indian Express and The Financial Express along with sites on travel and tourism, the entertainment industry, the power sector, the environment and much more.
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