Aamdani Atthanni Kharcha Rupaiya

Last week I was in Pune to meet some friends and celebrate my new job. On second day on trip my friend found me focused on market news. As true friends are he understood the matter and immediately cracked a joke on how much money have I lost in shares. After some good laugh he said “Everyone is talking about global slowdown, what is it? why don’t we see its effect on India? Is it an appropriate time to switch company?”. I soon realized that this same question is going through many people’s mind at my workplace too. People want to make a change but are reluctant as they are apprehensive about economic condition. Now I’m not an expert in this field nor have I done any formal studies on economics, but I still tried to explain the current scenario and try to clear some of his doubts.

The slowdown in my view can be attributed to two reasons. First the hand-off approach of Central banks and secondly a very basic human tendency of Desiring more than what he earns.

First of all we need to see what really went wrong. Well a simple answer to this is ‘Overspending’. Yes it is this particular attribute that has added to global woes. To start with we can take a simple example of bank giving home loans to customers. In order to get loan one needs to fulfill a set basic conditions proving that he/she can replay the loan amount. Also there is a limit on how much money a bank can lend while keeping reserve. Now US and many European countries in order to boost economy the Central banks kept on easing regulations on eligibility on borrowing. With old and much conservative approach of strict money borrowing removed a person can now borrow more money at less security. Plus the limit of credit a bank can give was increased and while maintaining lower reserve. With growing economy it was easy for investment bank to make money through various instruments like Derivatives, CDO, CDS and what not. People deposit there money in banks and some give it to investment institutions. These banks and investment institutions then lend this money to mortgage lenders. All was well till people kept on borrowing money and paid their dues. The problem started when loan takers went default. Once default the mortgage company took hold of house and kept it on sale. With time more people went on declaring default and more houses when on sale. Gradually the supply was more than demand and prices started falling. People soon realized that the house they are owning is much less worth and even they defaulted. Now mortgage lenders have too many houses with much lesser value and thus cannot reply the investment institutes who in-turn defaults on banks. Just like house of cards this cascading effect lead to fall of many elephant sized banks and thus complete economy. In this process everyone except few lost all their hard earned money and hence was declared recession.

Now is India shielded from recession. The answer will be a big NO. India is not isolated from world economy but we are much less affected by recession fears than others because of few very basic rules of human desired and spending tendency. This bring us to next point  of spending habits where I think the actual difference lies between Indian and western economies. Though moving towards liberal policies we are still conservative when compared to our western counterparts. Moreover the general tendency of an average Indian is to save money for future rather than spending it today for some luxury. An Indian will think twice before spending a penny over devices meant for comfort and an average American will spend all his bonus enjoying a Hawaii vacation or riding home a new car. Buying a house in India is big and once in a lifetime decision which might seems a bit grim to an American who keeps on changing roofs rather regularly in his lifetime. But this very trait of saving saved India from complete collapse. There is another pillar for India’s survival and that would be its huge population. Due to huge population mostly falling in young 25-35 year category provides a big market for companies. This young and big populations provides a huge market for companies to sell their product. Now as I said earlier Indians are very conservative in spending money, they look value for money and hence most of the time end up buying domestic products. This keeps domestic companies shielded from global meltdown to a certain extent as they depend on domestic consumption.

Now to answer third question about securing jobs is not easy, as the service sector in India is mostly dependent on western countries. The high riding IT companies are driven by project outsources by western banks and other biggies like CISCO, Adobe, Boeing, GE, JP Morgan Chase to name a few. These companies still provide most of the revenue for Indian IT companies and the latter ones depends less on domestic projects. Hence any bad news for global economy sends shock waves through Indian service sector. The western corporations try to cut cost by dropping new projects and there by reducing headcounts. But at the same time they have to shift more work to offshore and hence open new opportunities. So more or less situation was pretty stable. It is now that Obama is taking populist measures to stop moving work to offshore and create jobs locally. This seems to be a more of publicity effort for next elections and I guess this wont be an effective way to improve condition. The crusaders of globalization and free trade are not resorting to protectionism. This in my view will slow the growth rather than heal their economy.

As of now the situation seems to be stable and with worlds eyes focused on Greece and Eurozone everyone hopes that they come out with best solution. As far as India is concerned, though going through a bad phase I’m overall optimistic about Indian economy and hope that we will able survive in tough times. Till then one can look for better opportunities in market and grow as time permits.