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.
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.