The morbid fear has always been “If US sneezes the world catches cold”. However, the Global meltdown that has impacted the US, Europe and rest of the world seemed not to affect India as much as it was feared. IT and ITES indeed were impacted quite a bit. But most of the other industries and agriculture are seemingly not affected much. Many reasons are proffered to explain this. I believe there are a few reasons that have caused this “so called” immunity from the global melt down.
Prudent Financial Sector:
Indian banks are always accused of being way too conservative and stringent when it comes to helping the industry. This conservatism in a way has helped them not to get committed to a “sub-prime” kind of lending. The loans are generally backed by tangible securities rather than derivatives.
However, the situation is not as rosy as it used to be. Till few years back most of the Indian banks had less than 1% of net NPAs and quite a few of them even had zero net NPAs. They management this is because of the, often complained, conservative lending and also by aggressively making provisions. But of late, there is no zero-net NPA bank in India now. Eighteen of the 39 banks have at least 1% net NPAs, with Development Credit Bank topping the list (3.11%), followed by Indian Overseas Bank (2.52%). When it comes to gross NPAs as a percentage of loans, once again Development Credit Bank is the worst performer (8.69%). Other prominent names in this list are ICICI Bank Ltd (5.06%), Indian Overseas Bank (4.47%), Kotak Mahindra Bank Ltd (3.62%), United Bank of India (3.21%) and State Bank of India (3.05%).
(Source: http://www.livemint.com/2010/05/30221921/The-biggest-worry-for-indian-b.html)
People:
Culturally we are so obsessed with savings. It has both upside and downside to it. Upside is we as a country are rarely short of cash in the system. The downside is it stifles growth. But this cultural bend to save leads to stability which helps to tide over recession. Whereas, in the US the savings is negative; meaning an average American spends tomorrow’s income today. The private capital formation has continued to raise. The pattern of household savings is shifting towards financial assets and thereby raising the available loanable funds in the economy. (RBI Annual report 2009-10)
Culturally, India is a more tolerant society than many others. It is not absolutely true that we are resilient by force not by choice. We are resilient by our cultural roots as well. The basic contented attitude which is still prevalent in the semi-urban and rural India, (which is more than two-thirds of the Indian Population) has definitely a role to play in the recession not affecting us as much as it affected the developed economies. The neo-rich IT/ITES “professionals” were indeed affected more than others within India.
Domestic Consumption:
Manufacturers and service providers in India have sufficient market potential to survive on their own. Though our exports are increasing, a major chunk of our output is consumed within India. The ever increasing middle income group which is about a fourth of the Indian populace spends and saves predominantly within India. So our dependence on the recession hit economies is minimised (other than of course, IT/ITES).
This is another major reason for our scrapping through the recessions with mimimal damage.
Foreign manufacturers and service providers setting up shop to server local as well as export needs
India's FDI flows during the last couple of years has increased to over US$25 billion. The greatest opportunity considered by multinational firms is the market potential within India. In the world competitiveness index, India is ranked 3rd on the market size. (World Competitiveness Report 2007-08: World Economic Forum) There is a significant shift in the attitude of the Indian firms as well. We have also been investing globally in the last decade or so.
However, there is a huge negative aspect to this story. World Competitiveness Report 2007-08 has ranked India as low as 48 out of 131 countries.
Thanks to the sheer market size, we have managed to attract investments. We have fared extremely poorly on the other fronts. On a positive note, there is a huge potential for us to attract more FDI into India, if we manage to do well on the other parameters.
Getting used to recession or Immunity from recession:
We have not overcome the recession, but we have taken the recession in our stride. It is of course, a good attitude. The major reason is the resilient, prudent Indian populace. Being fearless is not “absence of fear” but “overcoming fear”. Similarly getting used to recession is not being recession proof. Systemic immunity from recession and capability to overcome recession is critical to ensure we are not really impacted by future recessions. I believe we have a long way to go. Lack of infrastructure, lack of public spending on education and, corrupt bureaucracy and polity provide a huge hurdle in our journey towards real stability. Our cultural base, especially in Urban India, is definitely getting impacted by the “spend tomorrow’s income today” mindset of the west. Urban India is bordering out of a contented mindset; while the rural India gets steeped in poverty.
In the context of this, I believe that the probable solution lies somewhere in a remote village of Kuthambakkam near Chennai.
Probable Solution: Kuthuambakkam – Model Village:
(http://www.modelvillageindia.org.in and http://www.goodnewsindia.com/index.php/Magazine/story/elango-kuthambakkam)
Kuthambakkam was like any other village of India – caste divides, abject poverty, illicit liquor and full of grievances, drunken brawls, wife beating and wails of women and children. An educated local lad R Elango, a chemical engineer by qualification, quit his job with government sector, decided to change it all. His attempts, along with his friends, to change the face of the village by forming youth clubs, wall posters with reformist messages, organising study groups, giving special tuitions and various other in-adequate reforms bore little result. Unlike many of us, he realised that reforms can be effective and sustainable only if it done through the formal governmental process but through harmonising the local passion. He threw his hat in the ring and became the President of the Kuthambakkam Village Panchayat.
World over we talk about “inclusive growth”. Kuthambakkam has become a model village for inclusive growth under the stewardship of Mr Elango.
He started using the local populace for building roads, culverts, drains and housing colonies using locally available material. Thereby a major portion of the Government funds for the village development was used for the villagers’ development. Officials backed his approach of cutting out contractors and employing locals instead. As he created jobs, liquor menace receded. He had always paid above the market average and most revolutionarily, precisely the same for women.
He mastered the Governmental promulgations for Village development and availed of every scheme for the village. "There are enough well meaning schemes announced by the Government. It is up to the local leadership to go and get them," he says. He has been an efficient conduit between his people and available opportunities.
The concept of Kuthambakkam model village is getting replicated in many villages in the last few years thanks to the evangelical enthusiasm of Mr. Elango and his motivated team.
He has been evolving an economic theory of village clusters. In simple terms about seven or eight villages form a free trade zone. They identify and produce goods and services without overlap. They consume each other's produce. And the money stays back and gets invested in human development.
Elango is optimistic for India. He says, "… the system will come up with the necessary resistance,… There are successful, honest Panchayat Presidents. We have begun to network and stay connected. This number will only increase. I am sure similar is the case in other States. I am starting a Panchayat Academy to teach the Presidents their powers and villages' entitlement. All these will rouse people's expectations. There is an emerging force not visible to the media and most people. It is at work changing India from below. This force cannot be stemmed."
In a recent conference, Mr. Elango opined, “What recession! If there is recession in US or Europe, Kuthambakkam will not be affected. Even if there is recession in India, Kuthambakkam will not be affected” (TiE Enterprising India Summit March 2011)
I believe this is the way forward for India to replicate more and more models using grassroots democracy. A model that is inclusive, generates self sufficient village clusters, providing housing for all, water management, hygiene and a perfect environment for harmonising the passion of the local populace.
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