Click to play videoIt’s being called the greatest financial crisis since the Great Depression of 1929. Many analysts say this is the death of free market capitalism, while others say it is the birth of a new set of regulations on the financial sector.
How do the colossal financial failures of the West affect India? CNN-IBN in partnership with The Hindustan Times carried out an opinion poll to understand what people think about the economic slowdown.
The poll was conducted by GfK Mode in seven cities: Delhi, Mumbai, Ahmedabad, Bangalore, Hyderabad, Chennai and Kolkata. Conducted on October 21 and 22, it surveyed a total of 1431 people in street interviews.
The Weekend Edition with Rajdeep Sardesai discussed and debated the findings of this survey with a panel comprising Deputy Chairman, Planning Commission, Montek Singh Ahluwalia; Head of CPI-M’s Economic Cell, Prasenjit Bose; FICCI President, Rajeev Chandrasekhar; Chief Economist (India Operations), JP Morgan, Jahangir Aziz.
First set of questions:
1) As India feels the ripple effects of the global financial crisis, is the aam admi nervous about India's economic health?
82 per cent: Yes
18 per cent: No
2) With stock markets crashing to new lows, how badly have people been affected by the market meltdown? And are people worried about losing their jobs?
85 per cent: Yes
15 per cent: No
3) What do the people think of the Government's handling of the crisis? Are they satisfied with the Finance Minister and the Prime Minister’s economic management team?
45 per cent: Effective
54 per cent: ineffective
1 per cent: No opinion
4) What do people think about the performance of the Finance Minister?
6 per cent: Excellent
29 per cent: Good
37 per cent: Average
17 per cent: Below average
11 per cent: Poor
5) Were the Left parties right in opposing opening up the Indian economy?
50 per cent: Yes
48 per cent: No
2 per cent: Can’t say
’Don’t worry, be happy’: An illusion?
Few weeks ago, Ahluwalia said there was nothing to worry about the current state of the world economy and the fears of it affecting the Indian markets adversely. But the findings of the poll clearly indicate that the don’t worry, be happy logic doesn’t apply. However, Ahluwalia said he was simply referring to bank deposits and nothing else. He also said it was logical for people to be worried but there was hope as India – compared with the rest of the world – was more likely to come out easy. “I did not say the crisis will have no effect on us. Government has been saying repeatedly that this major crisis will have an impact on India and will lead to slowing down of our growth,” he said.
Ahluwalia also denied having ever used the term “decoupled” while referring to India and the rest of the world. He suggested it was a media creation.
Some time ago, FICCI came out with a report saying the Government needs to do more. The survey, too, suggests people aren’t happy with the measures taken by those in power.
FICCI President Rajeev Chandrasekhar pointed out India’s problems were due to two reasons. One was the international downturn and its effect and the other, importantly, the monetary policy aimed at managing inflation which was sucking out economic liquidity and was causing serious harm to the industry. “We’ve been saying this for the last three quarters. India’s challenge is not just because of the global international crisis,” he said.
Ahluwalia responded to Chandrasekhar and said keeping inflation under control and keeping the growth going was a difficult management choice. “Whenever governments do that, it causes some people to feel that perhaps there’s too much negativity. In the first quarter (Apr1-June 1, 08), the GDP was 7.9 per cent. During that period, inflation was accelerating. After August it became clear that the Wholesale Price Index was showing good performance. It was in September that there was a real tightening of liquidity,” he said.
Chief Economist, JP Morgan, Jahangir Aziz, recently suggested in an article that the Finance Minister needed to do more. But what exactly constitutes "more"? “For those who talk about the growth-inflation trade-off -- I think one needs to bring down inflation to preserve growth. The government did take steps and we were surprised at the pace at which they took those steps. The immediate impact will through liquidity and the second is when these fast economies go into recession, the real impact will be felt through exports,” he said.
Chandrasekhar clarified his was not a hindsight view and that FICCI had been talking about the effect on business. As for solution, he said there was a deeper liquidity solution required for the markets. “We have to roll back CRR and repo rates to 2004-05 levels (at 5). Simply rolling it back to the beginning of 2008 is not going to help restart the economy,” he said.
The CNN-IBN survey also seemed to suggest that most people think the Left may be right about its opinion on the Indian economy. Prasenjit Bose of the CPI-M said it would be an overstatement to say that India has grown only because of economic reforms. “There are three things that need to be understood. The global economic crisis will have a serious impact on India. Govt is culpable of speaking in many voices and should get its act clear. The talk about liquidity will not solve problems,” he said.
Bose said the state has to step in with major infrastructural, social sector and public investment and step up demand in the economy.
Ahluwalia agreed with the last demand and said India should be supporting public investment into infrastructure and also support public-private partnership.
Second set of questions:
1) Have you been personally affected by the crash in the stock market? Here's what we found
47 per cent: Yes
53 per cent: No
People in Hyderabad and Ahmedabad were most affected
2) Is the drop in share market a short term or long term crisis?
63 per cent: Short term
37 per cent: Long term
The optimism was the weakest in Ahmedabad, Mumbai and Hyderabad
3) Where would you invest today?
37 per cent: Land or property
34 per cent: Bank fixed deposit
18 per cent: Gold
4) Have people personally cut down on spending?
43 per cent: Yes
57 per cent: No
5) What kind of spending have you cut down?
53 per cent: Avoid unnecessary purchases now
28 per cent: Stopped eating out
20 per cent: Delayed their plans to buy a house
21 per cent: Changed or curtailed their holiday plans
A doom-gloom scenario?
Bose disagreed with the first finding and said the poll was skewed. “If you look at the total figures, less than two per cent of total Indians invest in stock markets,” he said.
Some have also blamed the media for blowing up the magnitude of the financial crisis. But Aziz dismissed the argument and said news channels did not have to act to make the stock market crash – a crash of 55 per cent at that – any more sensational than it actually is. “People in the stock market are feeling the byte. It is hurting people. It doesn’t matter what TV says,” he said.
Ahluwalia said it was understandable that the media focused solely on the stock market as it was the only indicator which could be monitored second by second. “But I don’t think you should view the daily or weekly movements of the stock index as an indicator of economic fundamentals. It could be misleading,” he said, adding, it was important to distinguish between those who invest in stock market and expected to get a dividend return and those were looking only at capital gains. “Over time, dividend returns will be much more stable though stock values can go up and down,” he said.
Chandrasekhar agreed with Ahluwalia that we were getting obsessed with the stock markets. “The solution is in creating a real economy and all things will follow. I am fundamentally bullish about the consumer demand in the economy and infrastructural demands. If Govt can address that, we can be painlessly back on the growth train. That’s what our focus should be,” he said.
There is also a sense that things could get worse before they get any better. What with most people surveyed saying they will not cut down on spending. Aziz said the stock market indicated a clear liquidity crisis and people are looking for it wherever they can find it.
So isn’t it the time to ensure the Left supported the government on the economic crisis and help bail out the country rather than criticizing it? “Why should we? These are the measures which we have resisted. While Mr Ahluwalia says stock market is not that important. FM has been making statements playing on the stock market sentiment year after year,” he accused, saying it was time to step back rather than to liberalise. “What is the requirement of having companies gone bankrupt come into India through FDI?” he questioned.
Third set of questions:
1) Do you think nationalised banks are safer than private banks?
54 per cent: Yes
46 per cent: No, both are same
2) Is it the government's responsibility to bail out private banks if they face a financial problem?
68 per cent: Yes
32 per cent: No
Who to bank on?
While most Indian banks are seemingly safe, it needed ICICI a Shah Rukh Khan to get back customer confidence. Banking Editor, Network 18, Latha Venkatesh – who joined the panel at this juncture – expressed confidence that the Indian banking sector was indeed safe. “70 pc of banking sector is owned by the Government, the perception of safety comes easily. And even the banks that are not owned by the Govt seem safe due to the manner in which the prudential rules have been put in over the past several years,” she said.
Latha explained it thus: Out of every Rs 100 deposited, Rs 25 is in Government securities – the safety of which one can’t doubt – another 6.5 per cent is CRR. So essentially one-third of the money is safe and ensured.
But what more can banks do to encourage investor and customer confidence? Latha said it wasn’t the job of the banks to increase the investor confidence or to cut interest rates any more than commercial viability will allow them to. “I don’t expect banks to cut down rates anytime soon,” she warned.
She also asked Ahluwalia why there was a delay in cutting interest rates. “The RBI has clearly said liquidity will be closely watched. In the past few days Inflation rate – the one that gets headlined in the press – has actually come down,” he said, claiming this was a success of Govt’s policy.
Ahluwalia sent out a message that liquidity will be made available and the banks must expand lending. But Latha argued the reaction of the Govt and the RBI was delayed and not proactive at all. But Ahluwalia defended, saying the system should be given a chance to respond.
Fourth set of questions:
1) Are you worried about losing your job?
47 per cent: Yes
53 per cent: No
2) Is it right for companies to cut jobs?
21 per cent: Yes
79 per cent: No
Is my job safe?
Founder and CEO, Naukri.com/CEO, Info Edge India Ltd, Sanjeev Bikhchandani joined the panel at this juncture.
Bikhchandani responded to the findings of the survey and said the fear of job cut was unfounded. There’s still hiring going on, though not as robust as last year’s. “Aviation is in trouble and real estate is soft but others are going on fine,” he said. However, Assocham has said that there could be a 30 per cent retrenchment, though the Govt has rejected the report. It’s still is a real fear. However Bikhchandani said there was no chance of that happening.
Chandrasekhar too said it did not subscribe to Assocham’s doom and gloom findings. “We are expanding jobs. There’s no risk to contraction of economy if the Govt does the series of things it’s supposed to do,” he said.
But the Left chose to think differently. “It’s a serious situation and sectors linked to global economy will be hit. In real estate, for eg, bank lending has gone in a disproportionate way. These sectors will be hit and jobs will be cut. The extent is for one to see,” he said.
But it could also be an opportunity to cash in on the weakness of global markets, take hints and use the opportunity to build a robust economy.
Aziz said reform agenda had to be pursued and pushed forward. “I don’t think we are talking of a doom’s day where economy will fall off the cliff and there’ll be job cuts. Some sectors may be hit but overall, the economy would grow,” he summed up, warning the liquidity problem shouldn’t become a solvency problem for the corporate sector.
Ahluwalia said while he wouldn’t criticize the media – he said Rajdeep was sensitive to any criticism of the media – he pointed out another “case of sensationalism” – the Assocham report. “I am glad to see that all your panelists have rubbished the report. The good news is that Assocham has also rubbished it. Are things too grim? We are perfectly capable of managing the economy in a way that will limit the adverse effect,” he said.
The current situation is certainly is a crisis, if not a catastrophe, and every crisis provides an opportunity. Hopefully, there would be some for India as well.
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