By Kanica Soni
India has strong basic fundamentals due to which India is still buffered from the financial crisis however, policy makers need to be very cautious when making the policies in order for the country to be able to remain buoyant during this time. This is positive view is seen in a below statement by a senior official of the IMF:
“India is likely to emerge unscathed from the financial crisis sweeping the globe, thanks to the structure of its economy, exports and financial markets.”
CAUSES OF THE FINANCIAL CRISIS for India and other nations
Concerned about the global repercussions of the financial crisis, on 30 October 2008, General Assembly President, Mr. Miguel d’Escoto ( Nicaragua ), invited a panel of experts to hold an interactive discussion with Member States on causes; below are important views on the same pointing to the causes of current financial crisis.
Professor Francois Houtart ; The G-77/China indicated that the crisis is unprecedented because the epicenter is the richest and strongest country in financial terms and this evidences the weakness of the current international financial architecture to prevent crises of these sorts. The Group highlighted the loss of public confidence not only in governments but also in institutions and noted that the crisis cannot be dealt with effectively within the current institutional framework– there is a gap that needs to be filled through comprehensive review and reform of a systemic nature.
Professor Prabaht Patnaik, Professor at the Centre for Economic Studies and Planning at India said that the cause of the problem was located in the fundamental defect of the free market system regarding its capacity to distinguish between “enterprise” and “speculation” and hence, in its tendency to become dominated by speculators, interested not in the long-term yield assets but only in the short-term appreciation in asset values.
Besides the above facts, it is important to look at other factors that fuel this crisis that I have listed down below:
1. The current institutional composition of the markets, the deregulated nature of those markets and the vast liquid assets in private hands have even placed limits on concerned action by national governments and this does not allow to anticipate stabilization.
2. The concept of globalization refers to the universalization of a certain model of market society, characterized as open and private, because of its hypothetic character (model) confers such condition to the same globalization.
So, although the fact that several countries have realized reforms to push liberalization, as well as opening and economic privatizations can be attested, we are not in the face of a society of open and private world market, where, for example, there is free movement of work, or where federal or state governments do not participate in the property of very different assets.
3. Even then fundamental problem is found in the swings of overconfidence that was seen in many countries since the 1990s, overconfidence shared by millions, billions, of people. And this confidence has been very strong until recently.
4. Speculation (in a financial context) is the assumption of the risk of loss, in return for the uncertain possibility of a reward. Where the respective speculators take a carelessly calculated risk.
FACTORS THAT KEEP INDIA BUFFERED FROM THE IMPACT OF THE CRISIS AND POINT TOWARDS STABILITY
1. Domestic demand in India is very very strong, where you still have investments that is growing very strongly.
2. Consumption, especially of durables, has come off a little bit as interest rate has increased from last year and are beginning to bite, Kochar said in a teleconference.
3. Investments, which overtook consumption as the key driver of economic growth in 2003-04, has increased 20 per cent from last year’s level.
4. At the India Economic Summit in New Delhi this week, Indian officials and corporate executives remained optimistic about the future of outsourcing.
5. Montek Ahluwalia, Deputy Chairman of India's Planning Commission, predicted that India's economic growth for 2008-2009 will be between seven and nine percent. press release.
WHAT FACTORS CAN PROVE TO BE DANGEROUS
India is plugged into the world trading system but Indian exports have been diversified both in terms of goods and markets... On service exports... we don’t have a whole lot of strong evidence but we do believe that impact could go either way, Kochar noted.
To prevent such financial disasters in future Professor Francois Houtart, Professor Emeritus at Belgium ’s Catholic University of Louvain and founder of the Tricontinental Centre - noted the need for the transparency of financial instruments and institutions and stressed that managing them in a coordinated way at the national, regional and international level was crucial.
REF: http://www.globalresearch.ca/index.php?context=va&aid=10792
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