Slowing European, Japanese economies and Chinese economies will negatively impact India

While the GovernmentofIndia and PrimeministerModi have been taking steps to revive the  moribund Indian economy, alarmingsignals have come that indicate  that  the European Community,  Japan  and China are now ona downward spiral. Strong indications have also come out that the Chinese  economy is also slowing down to over-investment and excessive investment in their infra- structure.

Pullarao Pentapati

Instead of inflationary problems which plague India, Japan and the European community are suffering from a deflation. This means that prices are fallingfar too rapidly for the comfort of their economies.  Justas  inflationis harmful, deflation,which will shrink the economy , will create equal harm.

The recessionary trends in Japan and the European Community mean that India will lose export markets as there will be less  demand. This will impact on the Indian balance of payments position and the tradegap  willincrease. The Govt. of India has just releasedstatistics that exports have fallen by 5% this  October.

While oil prices have fallen and this has saved India enormous foreign exchange, this gain will be offset if exports fall due to recessionary trends in Japan and the European Community. India by  itselfcannot reverse the rece4ssioanry trends in Europe or Japan. When the USA faced a similar situation in 2008, the US Government and  their Federal reserve System ( their RBI ), pumped enormous  sums of money into the  economy. The Governmentof USA also saved  major auto companies and important  financial institutions.

Pro-Active USA in 2008-2009 saved  its economy:

The actionsof the  USA in  2008-2009 has led toa  slow revival of the US economy. The world community has to note that the recessionary trend in Europe and Japan and the slowing down of the Chinese economy will  negate whatever gains  the growing US economy contributes.

India faces a special challenge. Having become an economy which is well dovetailed into the international economy, any swings  or external factors  impact the Indian economy. In fact, the downward spiral of oil prices have also led to reduction of demands for  goods and services in the  oil-producing countries. Eventually,if  oilprices remain low, then millions of Indians working in the  Gulf and Middle East will be sent back.

Germany immune to  such  negative external factors :

The external factors will impact  India. But there are some countries who do not have oil and yet their economies  overcome all such odds. Germany   is a  good example  where the economy is the third strongest in the  world. There never seems to be a recession in Germany. This is perhaps due to the inherent discipline of Germans and also the fact that they follow very strict fiscal principles. Germanynever tolerates inflation. Germany also has in  place a great manufacturing ethos, where  maximum efficiency is the norm.

If India wants to avoid beingnegatively impacted by external factors, thenwe  have to create a situation and economy similar  to Germany. There has to be a  very efficient government and various changes have to be brought about . Corruption and the difficulty of doing business   must go down.

In any event, in the short run, India will facedifficulties to counter  theemerging recessionary trends in the European Community, Japan and China.

By Pullarao Pentapati

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