In his blog, Mr. George Soros, Chairman of the Soros Fund Management, writes An $11,000- billion demand market may not be sufficient to arrest the decline of housing prices with US$700-billion bailout plan. This indicates that the worst is yet to come.
The financial meltdown in the U.S. has already spelled doom for the global financial market. Despite the industry pundits including the Finance Minister, Mr. P. Chidambaram, and the Governor of RBI, Mr. D. Subbarao, have assured the entire industry of the country‚ strong economic fundamentals. Yet, there is obtrusive panic among the investors and entrepreneurs. Clearly, the liquidity crunch has created widespread uncertainty about the sustainability of business.
During his visit to India, Mr. Dominique Strauss-Kahn, Managing Director, International Monetary Fund (IMF), had stated that India and China are the two countries, which would be immune from the economic turmoil. Today also, IMF is of the same view and says that the GDP of India will slow down to 7.9 per cent in 2008 and slide further to 6.9 per cent in the next year against the GDP growth of 9.8 per cent in 2006 and 9.3 per cent in 2007.
However, the forecasts of the pundits do not seem to have impacted the industry so far. But the Indian aviation industry has already started giving alarm signals and is seeking bailout plans. Or, they would slash the (not-so-immune) workforce (already indicated by the Jet and Kingfisher alliance and AirIndia announcement).
On the other hand, the impact on the Indian IT industry will not be so strong because the overseas market has to be aggressive in their policy of outsourcing. And, India has a better chance to win the deals. However, the margin will further slide and the RoI will be longer. At the same time, the volume of orders will surely grow. Secondly, the import market will suffer to an extent. Two things emerge from it. Owning to the slump in demand from the U.S. and European markets, the Chinese and Taiwanese manufacturers will try to push more products to large economies like India at an affordable rate. It will be a case of survival for them. They will have to play down the prices in order to negate the impact of dollar price rise.
Here, the Indian entrepreneurs will have to be very careful in negotiating business deals. They will have to keep sufficient cash reserves to sustain longer business cycles. They will also have to curtail the expenses in order to show a healthy balance sheet. Secondly, the vendors need to find some ways and means to modify their credit policy.
Sanjay Mahapatra
Editor
