Searching for the Bottom

Did people actually buy televisions and other appliances before the festive season began? If you take yesterday's industrial production figures seriously, you would probably conclude so. Consumer durable production has done badly. Whether anyone takes the figures seriously or not, the figures look quite serious with almost all sectors doing badly except electricity. One of the reasons one has to carefully look at industrial production data is because it often has quirks that are not immediately apparent. Thus, it is probably better to see something going on for some months before concluding something is actually happening. Of course, there can be no doubt in anybody's mind that industrial production and industry is doing badly. That has been going on for many months now. Even though people keep looking for signs of a turnaround, there just doesn't seem to be any evidence of it. Very clearly, manufacturers are making adjustments to their production levels, in many cases reducing production, sometimes even shutting down facilities periodically. Even as this happens, adjustment of inventories is also happening. Then, there is the prickly receivables issue where people down the line are grappling with outstanding payments thanks to the tight liquidity conditions. In such conditions, it is not unusual for smaller outfits to go belly-up. We all know that you can be asset rich and have sales going but working capital or shall we say, cash, is the king. It is the lifeblood of business. Suck that out and business first heads for the ICU and then to its grave. Much of all this happening at a pretty wide scale and I realised this during my short break last week as I interacted with various people from small scale entrepreneurs to shopkeepers on sidewalks .
 Of course, there are people who keep wondering when the investment cycle will kick off. I would say that it is a long way off. Biggies will wait for elections. Nobody likes dealing four-, ten-, twenty-headed authorities indulging in multiple speak about rules and giving them a hard time. For others, they will try to first get a  fix on what to do with their existing investments and capacities. That would go on for some time. As for me, I am really not expecting industrial scene to change any time soon.       

A Problem Called Europe

Uncertainty over events in Europe and its impact on the European crisis continues to take a toll across the globe. In India, its impact on stockmarkets this week is clearly visible where despite the Finance Minister's clarification on GAAR (which to some is "half-hearted", if not half-baked") there have been downward moves in the market and less-than-required-enthusiasm. To me, the "euromess" if I am allowed to coin this has two important messages. First, to enjoy economic benefits of a economic union you need to have monetary and fiscal policies both under single control. Minus the fiscal levers and fiscal discipline, it is not very difficult to get into the kind of mess Europe has got into. For instance, tt is now common knowledge that all the members of EU have flouted their fiscal deficit many times during the period the Union has been around. Included in the list is Germany which at times pontificates to other nations. If you take a step back and take a hard look, you will see similarities between and Europe and India as well. While India's monetary authority has been taking action in the recent past in India we don't find matching contribution by the government on the fiscal front.

The second lesson from Europe is the more worrying one. Recent elections have thrown out governments that have been following policies of economic austerity. While there are eminent economists such as Paul Krugman who feel that these policies should have not been initiated in the first place since what was required was more good old Keynesian government spending to create jobs and not worry about deficits and inflation as some governments have, the message from the electorate is that if a government's policy doesn't work for people, it will be thrown out. But can people throw out a system be thrown out if it doesn't work? History is replete with examples be it Germany in early 1930's or many others when demagogues seized power after thwarting democracy, free speech and free markets, encashing on people's desperation. In Spain, it seems about 50 per cent of the youth are unemployed. Anybody in the know of the economic situation can tell that the current euromess and global financial crisis will not go away in a hurry. Thus, while it will be easy for political parties and politicians to seize power encashing on popular disenchantment, it will not be easy to deliver the moon they promise as there are no easy ways out of the mess. The danger lies in people getting disillusioned with existing systems altogether and we will have a global cesspool. If one reads accounts of Greeks reeling under the impact of austerity measures one would start realising the meaning of "lost generation". While in US the situation is better thanks to a lower unemployment rate, but profound changes are already happening to people and their lives. Popular media is documenting how people even in their 70's are continuing to work sometimes at half the pay, because they can't afford to lead the retired life. The other scary lesson from anti-austerity movements is that once people get used to certain things they will not be able to live without them. It will be difficult for politicians to convince people on matters of economics. For instance, how will you convince people in India to pay user charges for electricity, cooking gas and diesel? Who can? Try telling this to our legislators who dole out one freebie after the other to the public as if there is no tomorrow.