Vinod Anand

IT is necessary to define inflation and recession as concepts before we analyse these. Inflation is understood as a process of steadily rising prices, resulting in diminishing purchasing power of a given nominal sum of money. Recession is a state of the economy when there is unemployment but it is of short duration unlike depression which is of long period duration. Inflation is either demand-pull or it is cost-push inflation. For the last few months, India has been facing uncalled for inflationary pressures. It touched a high of 7 per cent in March 2008 as measured in terms of The Wholesale Price Index (WPI) with the base year 1993-94, and continued to go up, and reached a peak of a double digit figure. But eventually it showed a downward trend. The weeks ending November 1, 2008 and November 8, 2008 have recorded a significant decline in inflation measured by the WPI. As on November 8, 2008, the headline inflation was 8.90 per cent. This shows that that the measures initiated to tackle inflation are bearing fruit. It was taken for granted that it was a demand-pull inflation, and the Government tried to tackle it through demand management by fiscal and monetary measures. On the fiscal side, the Government has given up revenues to the extent of Rs.31, 000 crore post Budget. This has to be viewed in the context of increased expenditure. While the total expenditure was placed at Rs.750, 884 crore in the Budget documents, an additional expenditure of Rs.105, 613 crore was approved in the First Supplementary Demands for Grants. In addition to the fiscal measures, monetary instruments were also used by the RBI for demand management. These included a gradual increase in the Repo rate to reach 9.0 per cent on August 30, 2008 and an increase in CRR, in steps, by 400 basis points to reach 9.0 per cent effective August 30, 2008. Since then, the direction of policy has changed. The Repo has been brought down to 7.5 per cent effective November 3, 2008 and the CRR has been reduced to 5.5 per cent effective November 8, 2008. There is no doubt that these measures have helped the economy to reduce liquidity, and, thereby, also the demand for good and services.

Simultaneously with the rise of prices in India, there also occurred a world wide recession. Most of the economies are still witnessing a rare instance in history of a synchronized global recession in terms of many parameters (like contracting the growth prospects, reducing employment, and pushing down the jobless rate, reducing exports, and industrial production, financial crisis, and so on). It is estimated that such a pessimistic scenario will continue until mid- 2009. India is adversely affected by this continuing recession, but not to the extent to which quite a number of countries, both developed and developing, are facing the chaotic situation. Besides India, China and Brazil are also not in a very difficult situation. Recession that basically originated from the US financial crisis and meltdown has spread all over the world basically because of globalization which has closely integrated all the countries. India, like other countries simultaneously faced two problems: inflation and recession. Apart from non-core reasons (coming through globalization and inter-linkages with other countries), recession has also been aggravated via monetary and other policies initiated by the Government to control the rising inflationary pressure in the country. As said above, there has been a little respite in the context of inflation, but the aftermath of recession still continues. Let us briefly look at some of the problems that the country is facing in this context:

• Exports have declined by around 12 per cent in November, showing a negative trend for the second month in a row. There is a double-digit decline on the lack of demand in most of the buying markets including the US, the UK, Japan and other countries in Euro zone, which are India’s major export destinations;

• Indian industry has also shrunk for the first time in 15 years with 0.4 per cent year-on-year decline in October this year. The growth was about 12.2 per cent in October last year. It has been partly due to a dip of over 12 per cent in India’s exports;

Financial crisis in India has been basically triggered because of the prevalence of high stakes in the financial markets under uncertainty with risks involved in holding assets often disproportionately high as compared to their realized returns (called the Minskian ‘ponzi’ deals ), financial innovations in de-regulated markets;

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Economy: 2009

THERE are plenty of doomsayers and no economist or politician is stretching his or her neck out to claim that this would see and an end to economic recession that is fast turning into depression. What is, however, clear is that the present neo liberal model that allowed unfettered run to fundamentalism of the market is lifeless. What replaces it is yet not clear.

Here are the bare facts that warn of bad times ahead for the Indian econ0my.
The automobile industry signed off 2008 on a dismal note as domestic sales in December continued to slide despite a 4 per cent cut in excise duties earlier in the month.

Car market leader Maruti Suzuki registered an 11.2 per cent fall in car sales for December 2008 over the same period last year, following declines of 8 per cent and 27.4 per cent in October and November, respectively.

To help the industry wriggle out of the slowdown, excise duties were reduced on December 7. Clearly, the cuts have not had the desired effect on sales. Last week, Maruti had indicated that despite the price cuts that followed the excise rebate, its impact on consumer demand was still to be felt.

General Motor's domestic sales too slid by 36 per cent during the month and the company missed its growth target for 2008 as well. “Since the market has slowed down completely we could not meet our target although we have registered a marginal growth of 9.5 per cent,” said P Balendran, vice president, GM India.

The spark was missing in the two wheeler segment as well. Market leader Hero Honda reported a 10.2 per cent decline in December, its first double digit fall in 17 months. The company expects sales to remain under pressure in the new year.

Second placed Bajaj Auto Ltd also reported a 32.7 per cent dip in sales during the month, in line with 34 per cent and 37 per cent fall in October and November. Bajaj blamed high inventories for the bad numbers.

Export woes worse

The turmoil in the West is once again bearing on the exports from India as can be seen in the official figures. India’s exports fell by 9.9 per cent in November 2008 under the impact of declining consumer demand in the US and other major global markets, with negative growth for the second month running and widening monthly trade deficit by over $10 billion.

Official figures released today showed that exports had dropped to $11.5 billion in November this fiscal, from $12.7 billion a year ago, while imports grew by 6.1 per cent to $21.5 billion.

However, exports expanded by 12 per cent in rupee terms with the increase in exporters’ realisations due to about 20 per cent decline in the value of the Indian currency against dollar in the last few months.

Export contracted by 12.1 per cent in October showing negative trend for the first time in the last five years.

Between April-November the exports grew by only 19.4 per cent to $119.30 billion.

During the same period imports rose by 33 per cent to $203.64 billion. The trade deficit for the period has mounted to $84.34 billion from $53.19 billion. Oil continued to be the largest import item during November Oil imports during April- November 2008 were valued at $74,114 million which was 55.7 per cent higher than the oil imports of $47,597 million in the corresponding period last year.

With the US and several European countries slipping into full-blown recession, Indian exporters have run into difficult times, especially since October.

Manufacturing sectors like leather, textile, gems and jewellery have been hit hard because of demand slump in the US and Europe.

Total imports during April-November 2008-09 were at $203.64 billion against $153.10 billion in the same period last fiscal.

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Pakistan: Tragedy continues

IN Pakistan violence during the year 2008 peaked with a deadly attack on December 28 in the Buner district of the Northwestern Frontier Province (NWFP), where a suicide bomber rammed an explosives-laden car in to a polling station killing 32 innocents.

A report by the mass circulation daily, The News recounted 66 suicide attacks and 965 deaths all over the country, taking the average monthly casualties to at least 80 suicide. The Frontier province and the FATA region bore the brunt of terrorism, suffering about 45 suicide bombings altogether. The Swat region topped the districts with about a dozen suicide attacks, followed by four in Peshawar.

Equally destructive whose impact on the country as a whole was the one on the Marriott Hotel in the well-guarded in Islamabad. Regardless of the official claims and the results of the operation in the Khyber Agency, widespread violence – some 475 acts of terrorism; bomb blasts, suicide bombings, sniper attacks, and ambushes of officials in the Frontier Province alone, the outlook is bleak for the terro struck country. Add to this what pakisnati terroists have been doing in india, the picture is totally dark.

According to a recent Gallup Pakistan survey, only nine percent Pakistanis are hopeful of better times in 2009. In April 2008, over two months after the general elections, as many as 60 percent Pakistanis had hoped things would improve.

Pakistan citizens find themlseves hostage to narratives of ‘terror’ that are either alien to its ethos or are constructed by its home-grown theologians and opinion-makers. One commnetator pout it it, “This is not to say that the issue of suicide bombings is easy to define and understand. They are essentially complex and located in decades of Pakistan’s evolution into a society that is difficult yet again to label: Islamic in name, struggling to be democratic and a republic it is not, well, not yet.”

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