Home » Business » Even domestic demand may fail to curb slowdown
Three years ago, external factors triggered by a collapse of US financial services icon Lehman Brothers led to a massive fall in industrial production. Today, we see a replay of that post-December 2008 phenomenon.
Industrial production numbers, falling exports growth, declining GDP and worrying depreciation of the rupee against the dollar all remind us of those initial signs of the 2008-09 crisis.
Economists and industry chambers are divided whether the Indian economy is headed towards the same slow growth as was the case during the time of global financial crisis.
However, unlike then, this time there is no hope of fiscal stimulus. For, government finances are in bad shape and no one is talking of RBI cutting policy rates. In fact, come this Friday, most are only looking forward to a pause on its rate rise spree.
Ficci says the Indian economy will be in a longer lasting crisis than in 2008-09 in case there is an external shock in the form of euro disintegration. "There is a complete lack of fiscal space," notes Rajiv Kumar, the chamber's secretary-general.
During the crisis period of 2008-09, the economy fell in two quarters -- and recovered in the third. To Kumar, even without an external shock, "we are in the midst of a prolonged downward cycle". Arun Singh doesn't agree to it.
"I won't say worse," says the senior economist with Dun and Bradstreet. "But, yes, we would be close to the 2008-09 crisis. The difference is the government cannot do anything this time."
According to Singh, the government should go for qualitative measures in the form of reforms when it cannot consider quantitative measures.
"We did not have any major reforms since 1991," he notes. "If the government initiates reforms, we will be able to restore investors' confidence, helping in the revival of the crisis."
In 2008-09, it was domestic demand that provided the cushion to the economy against external shocks. It also ensured that the country's economy emerged out of the crisis fast. However, this time, rural demand is also on a decline posing a greater danger.
"There are a few issues with
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