Synchronized Slowbalisation of Economy

Synchronized Slowbalisation of Economy
Indian economy is reeling under pressure and spending power of consumers has come down to great extent. There is deceleration of economic activity caused by slowing consumption trends.

One glaring example is drop in sale of passenger cars by 17% in month of April 2019.This is 6th month in sequence in which car sale has declined reaching lowest level in last 8 years. There has been decline in 2 wheeler sale by 12%.Commercial vehicle sale has declined by 6%.

Power sector has also witnessed decline in demand and subsequently drop in production. Following figures are item wise drop in production compared to previous year
Transmission line towers - 12%
HT Motors - 24%
Power Transformers - 3%

As regard consumer items and prices of essential commodities April has witnessed highest inflation in last 6 months. Consumer price index has increased by 2.92% .Crisil have further predicted that this will increase to 4%.

This slowdown has affected stock marketas well. This Monday 13th May, BSE and NSE index nosedived and investors have lost Rs 8.56 lac crores in single day.
The reasons given are decline in domestic demand , uncertainty of outcome of Loksabha elections , expected rise in petrol/diesel prices, weakened Indian rupee, strained relations with neighbors ,terrorist attacks in Sri Lanka and vulnerability of India etc.
Asian stocks are slumping, Australian shares are down and European stocks have hit 22 months low.
As far as Indian Economy is concerned revenue and growth projections indicated last year have not been met. There isshortfall in revenue by Rs 1.6 trillion. The Government was forced to cut expenditure. Main sector affected is Infra. .The tax collection would have to grow and you will find taxman running after you.

Indian economy is also integrated with world economy. Whatever is happening outside shall affect India as well. The rise in crude oil prices, trade war between USA and China, attacks on Saudi ships carring oil and tension between USA and Iran is also affecting us.

'Synchronized Slowbalization ' involves multiple countries getting brunt all together. US -China trade war has affected other countries. US have imposed customs duty of 25% or more on Chinese products and China has also retaliated. Chineseexports to US are $ 3, 00,000 million. Due to their products becoming not competitive business to the extent of $ 70,000 million is likely to shift to Europe. What about India?

India has not been able to create conducive atmosphere by which they could have taken advantage of situation. India has capability and capacity to produce goods which China has been exporting to US. India could have easily taken place of China. However US perceives India in similar fashion as China. American commerce minister Mr. Wilber Ross during his last week visit to India have asked India to open up further. They were also successful in stopping India's oil imports from Iran.

The US Federal Reserve has raised interest rate 3 times in last one year .Even China has followed suit.

Earlier interest rates were low & companies borrowed heavily. Now due to additional interest burden bottom lines will erode and shall lead to crash.

Dollar is strengthening & affecting emerging economies like Turkey, Brazil and India into deeper global crisis.
China economy is in deep trouble.
Brexit phenomenon is going to affect UK and other EU countries.
Italy has new government and their agenda is of anti-globalization.

The prices of oil are on rise and analysts feel that it can hit $ 100 per barrel.

India is country which has consumers and as well producers of all products. They can produce toy to turbine everything. The Government should have encouraged domestic producers for internal consumption. However it did not happen.

Government also could not continue with cheaper oil imports from Iran. They had to buckle to pressure from US.

American companies like HP, Apple have created manufacturing bases at China, Vietnam, and Malaysia etc. In case of India's campaign of "Make in India" the target was to bring such companies to India and asking them to set up factories here. However opposite happened. These companies formulated "Make for India ".Goods produced elsewhere were dumped in India. This has also contributed to slowdown in Indian economy.

Even now we need to get up and get rid of our title of 'sleeping elephant.' If we produce and sell for ourselves then there can be improvement. Items which are made in India need not be imported. Any import L/c should be opened only and onlyif item is not available in India.

There are instances when supply contracts are awarded to foreign manufacturers based on USD rate at the time of tender opening. By the time item is imported USD rate changes and we pay through our nose.
The congestion at our ports also leads to demurrage charges which buyer ends up paying.

In case of Northern African countries like Morocco, Egypt there is 25% import duty on goods imported from India. However there is Nil customs duty for goods imported from Europe. Our Government during bilateral talks should have taken care interest of our exporters.

Government need to increase their spending in Infra the way china has done by issuing $ 180 billion infra bonds. China has also helped Industry by $ 300 billion cut in VAT so that reduced cost will help companies to sustain and remain competitive.

The economy "slowbalisation” has already begun and in which way it goes is in our hand.

Datt Udas
8828200418
datt.udas63@gmail.com