Dealing with the Crisis in India

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Submitted By sonia321
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editorials

dealing with the Crisis in india
In the context of the spreading financial and economic crisis, what essentially needs to be done in India?

U

ntil just the other day, Union Finance Minister P Chidambaram thought that he could calm the stock market with smooth talk about the Indian economy’s “strong fundamentals”, its sound banking system, and so on. He was surely whistling in the dark if he thought that all those slick phrases would actually arrest the turbulence in the stock market and impel hard-nosed bankers to disburse more credit. Apart from exuding confidence in the economy, all the government seemed to think necessary was to relax further the conditions governing foreign institutional investment inflows and pump more liquidity into the system. But, on 3
November, Prime Minister Manmohan Singh met the captains of
Indian industry to assure them that the government would do all they wanted to maintain the tempo of what has essentially been private investment-cum-elite consumption-driven growth.
The prime minister was concerned that “international credit has shrunk with adverse effects on our corporates (sic) and our banks”.
He admitted that “Global uncertainty is also tending to dampen investor sentiment”. But, apart from harnessing the “counter cyclical role” of “expanding investment in infrastructure”, the measures the prime minister hinted at were more of the same – cut interest rates and “infuse liquidity into the system to ensure adequate flow of credit”. Now, the fact is that the state of longterm expectations as regards the prospect for profitable investment opportunities, what Keynes called “the marginal efficiency of capital”, is exceedingly gloomy. What if massive liquidity is pumped into the financial system and the rate of interest is brought down to near zero and yet businesses do not want to invest as…...

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