By George Joseph
Till the beginning of last year all discussions were centered. round the booming economy. And now, in less than 2 years we are discussing the economic doom. From boom to doom- how did it happen so fast, what are its ramifications, what are the solutions...?Everybody is aware of them by now. Starting with the sub-prime loan crisis, the entire edifice of the US economy collapsed, creating major cracks in the economies all over the world which resulted in the global economy contracting by about 20% (?).Unlike in the Great Depression of 1930s, fortunately today the Governments knew the causes of the problem, and as such all of them came out with remedial measures and massive stimulus packages. The efforts have started showing results; green shoots started appearing.
The role of the financial gurus, economists, bankers, the press and the media should be to forewarn the general public of the possible economic downturn and the impending catastrophe, if there is one coming up, similar to weather forecasting. It is more important than analyzing the problem after it has set in. On the contrary, in the present scenario not only did they not forewarn the people about the economic crisis but they were frightening the people with horrible stories picked up from around the world every day. Any adverse thing happening around you is interpreted as the result of the economic slowdown. Even a leaf falling from the tree is described as the result of the economic crisis. It only helps to create a psychological fear in the minds of the people. Those who have money hesitate to invest because of this fear. Those who want to buy postpone the buying for the same reason.
There was an interesting incident. We have a "presswallah" (the one who irons your clothes) in our residential area. One day his old wooden ironing table broke down with all the clothes and the ironing box on it falling to the ground. He was trying to fix its legs when I met him. I asked him in a lighter vein why he was not getting a new table and a good ironing box. He looked at me very seriously and reminded me "Sir, abhi rejession hai". I was aghast when I realized that he was speaking of the recession. The poor man who doesn't know anything about the economics of recession got the idea from somewhere that it is a time when you shall not indulge in any kind of buying or selling. Such a psychological fear or panic among the people is compounding the current crisis. People have money, but they don't want to do anything now because of the uncertainty.
(At the height of the economic downturn, the banking system as a whole added Rs.70,000 crores as deposits in the last quarter of the financial year 2008-09 alone, to its 38 Lakh crore deposit kitty.)
Our duty therefore is to help build confidence in people to come out and invest and to engage in all kinds of economic activities. While confidence building can be done through the monetary policy measures and various investment decisions by the Government, it is equally necessary to educate the public as to the implications of these. This is where we can come in.
Unemployment is the worst fall out of this crisis.(Export-oriented units and IT related sectors are obviously the most affected. Fortunately, the financial system in India has withstood the crisis mainly because of the unique business model that the Indian banks follow though MNC banks who subscribed to other business models burnt their fingures to that extent). I am hopeful that the contracted economies of the world will expand to their realistic size soon and all the unemployed will be absorbed back again in to the system. This shall be the positive message we should be spreading so that those who have lost their jobs will find some hope.Now, economic crises may happen again but our emphasis shall be to see how the damage caused by similar crisis can be reduced if not averted in future. I have two suggestions in this regard.
1. The educated youth shall focus more on self-employment, or in other words they shall become entrepreneurs, rather than looking for employment. At the slightest provocation you are fired from the job whereas if you have your own enterprise, there will be contraction or expansion in the volume of business, but you will not be out in the street totally deprived of everything in a fine morning. Micro Small and Medium Enterprises (MSMEs) are given massive support by the banks. Banks have lent Rs.9000 crores in the last few months to MSMEs as part of the stimulus package. (Whenever I think of MSMEs the rubber (latex), and jackfruit come to my mind. In an old study, more than 50,000 applications have been identified for the latex. Exotic drinks and other items can be made out of jack fruit which is abundantly available in Kerala, and is often wasted. Possibilities for MSMEs are enormous in our country. Proper awareness is what is needed.
Awareness among the youth on these lines can be created through seminars, workshops, etc. Experts can be involved for project identification and other guidance in conceptualizing and implementing them.
2. Expert committees comprising of economists, sociologists and other experts can be constituted under the aegis of Governments, NGOs, religious organizations and others to monitor the developments across the globe even during normal times and to forecast what is going to happen. This will immensely benefit the people, making them aware of what is going on around them. Why I say this is because just like the tsunami sucking away everything all of a sudden, the economic downturns shall not catch the people unawares and destroy them. During boom time the committees can advise people what to do and what not to do etc. Our society is endowed with resourceful persons and their skills and knowledge shall be made use of for the benefit of the people.
*Mr. George Joseph, Asst.General Manager, Federal Bank, New Delhi
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Monitor economy, forecast recessions and promote SMEs