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Taming the global economic crisis – Some suggestions

The emphasis should be on evolving a growth model that is more inclusive, sustainable and tackles India's long-standing problems like lack of education and population growth.

By Anubhav Srivastava

April 01, 2009

The viciousness of current economic slowdown has taken everyone including the policy-makers and the corporate heads by surprise. That there are few solutions to the current crisis, even with the leading economists, can be judged from the fact that the Ministry of Finance, India has constituted a committee to invite suggestions from on the Current Global Financial Situation and its impact on India.

Many industrialists also agree that the current economic crisis is not a normal business cycle and the recovery may take as long as two years. However, few in the government and the industry are taking a hard look at some of the fundamental flaws that existed in the Indian economy even before the current crisis came to head. And that there is a need of a change in approach in judging the parameters which indicate the health of the economy.

First of all, it must be understood that the state of the industry or the stock market does not in any way indicate the state of the economy in the country. The media went head over heals when the stock markets were rising and now again over the prospects of millions of people being rendered jobless by the current economic crisis.

What is not realised by many is that more than 90 per cent of the employed personnel in India work in the unorganised sector. Many of these people in the unorganised sector work on absurdly low wages and in unsuitable working conditions. The economic boom that preceded the current crisis has had no visible impact on their lives.
Secondly, outside the big cities, the vast countryside of India continues to remain in shambles. Even basic infrastructure is not available in many parts of the country and growth and employment opportunities are not available to a large section of the people. Since these two problems have continued to exist, it was not right to project the rise in GDP and the surging stocks markets as indicators of robust economic condition.

Thirdly, it must be understood by the policy makers that providing relief to the industry with monetary and fiscal policy measures will have no visible impact unless the above mentioned anomalies are not taken care of. On the contrary, taking steps like decreasing the rate of interest will have a detrimental effect on the finances of the government. 
The central and state governments in India should take measures on the following lines in order to put the economy back on track –
  • Instead of providing relief to the industry by fiscal and monetary policy measures, government should invest heavily in basic infrastructure with special emphasis on building roads. This will have a cascading effect on almost all sectors of economy. These infrastructure projects will give employment to a large number of people. The improved infrastructure will give impetus to the people to start their own ventures. 
  • Since it is tough to generate jobs in the current scenario, the government should promote entrepreneurship by giving loans at lower interest rates for start-ups and new business ventures. Even if the rate of interest is low, it will help in keeping the finance sector afloat. Stricter norms should be introduced to ensure that the loans given to individuals are repaid by them on a timely basis.
  • There is an urgent need to identify the sectors of economy where there is demand of goods and services and hence demand for trained professionals. The available manpower in the country should be efficiently & meaningfully trained and deployed. For example, the tourism sector still has a lot of potential to generate employment though the lack of proper infrastructure is a big limitation. Health sector is another example.
  • The recent boom in the Information Technology (IT) and finance sector has led to mushrooming of management institutes, engineering colleges and other institutes offering certificate courses in the field of Information Technology. The government should put a check on their numbers by denying accreditations. India does not need IT and management professionals in such large numbers, many of whom end up working in the Business Process Outsourcing (BPO) sector and the skills they have acquired remains irrelevant.
  • There is a need to reduce the dependence on the services sector, which currently employs the largest chunk of workforce in India by the way of structural reforms. Efforts should be made to shore up manufacturing and agriculture sectors that provide long term and stable employment. Ideally, in a vast country like India, all three should have nearly equal share of country's Gross Domestic Product (GDP). Unless the primary sectors of economy are in sound financial condition, the secondary and tertiary sectors cannot survive.

  • There is a need to do find newer ways of generating revenues and shore up the government finances. One of them could be introducing cess of 20 per cent on the telecom services that are dirt-cheap. This measure can generate huge funds for the government without any substantial impact on the revenues of telecom companies. The money can be used for various infrastructure schemes.
The government and corporate sector should come together in dealing with the current financial crisis which can have a long-term adverse impact on the social fabric of India. There is an urgent need to cut unnecessary spending in the government as well as the astronomically high salaries being given to the top employees by many corporate organisations. There is a need to make the Indian youth, nurturing burgeoning financial expectations, aware of the ground realities and keeping their morale high.

It must be realised that the reason of the current downfall is that the model of unlimited growth and the corresponding rise in financial status of a few at the cost of a vast majority of others was unsustainable. The emphasis should be on evolving a growth model that is more inclusive, sustainable – both for economy and the environment – and tackles India's long-standing problems like lack of education and population growth.
The author is Editor, Policy Proposals For India. 


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