Swarajya Logo
Swarajya Logo
Politics States Economy Society Business Culture Infra Defence World Books Ideas Science Technology Heritage Archives Legal Movies Sports
  • Our Views
    Politics States Economy Society Business Culture Infra Defence World Books Ideas Science Technology Heritage Archives Legal Movies Sports
  • Magazine
  • Store

About Swarajya

Swarajya is a publication by Kovai Media Private Limited.

Swarajya - a big tent for liberal right of centre discourse that reaches out, engages and caters to the new India.

editor@swarajyamag.com

Useful Links

  • About Us
  • Subscriptions Support
  • Editorial Philosophy
  • Press Kit
  • Privacy Policy
  • Terms of Use
  • Code of Conduct
  • Plagiarism Policy
  • Refund & Cancellation Policy

Useful Links

  • About Us
  • Subscriptions Support
  • Editorial Philosophy
  • Press Kit
  • Privacy Policy
  • Terms of Use
  • Code of Conduct
  • Plagiarism Policy
  • Refund & Cancellation Policy

Participate

  • Contact Us
  • Write for us
  • Style Guide
  • Jobs

Stay Connected

  • Artboard 2 Copy 6Created with Sketch.
    Artboard 2 Copy 10Created with Sketch.
    Artboard 2 Copy 7Created with Sketch.
    Artboard 2 Copy 9Created with Sketch.
  • Andriod Logo
  • IOS Logo

Economy

Is It 2008 Once More? Even If It Isn’t, Modi And Sitharaman Should Treat It As One

R JagannathanTuesday, March 10, 2020 12:08 pm IST
Finance Minister Nirmala Sitharaman and Prime Minister Narendra Modi.
Finance Minister Nirmala Sitharaman and Prime Minister Narendra Modi.
Finance Minister Nirmala Sitharaman and Prime Minister Narendra Modi.
  • For the Indian economy, which is still to show a clear recovery, 2020 looks worse than 2008 because 12 years ago our economy was booming; this time it is clearly in crisis.
  • If Monday, 9 March, brought back memories of the 2008 Lehman crisis, it is not without reason. Everything that could crash, crashed.

    The Dow collapsed over 2,000 points, forcing the US stock exchanges to stop trading for a while.

    The BSE Sensex nosedived by 1,941 points after looking much worse intra-day. It has essentially wiped out all the gains that accrued over the last one year.

    Brent crude, the benchmark for Indian imports, skidded so hard that, at one point, it fell below $30 to a barrel.

    The only thing that boomed were bonds. Both the 10-year US Treasury and the 10-year Government of India (GOI) bonds gained prices — which is the same as saying that yields crashed. The US Treasury yield went as low as 0.35 per cent before recovering. It is now around 0.69 per cent. Ten-year GOI yields temporarily dipped below 6 per cent before closing at 6.07 per cent.

    The big question that no one knows the answer to is whether it is 2008 all over again. With trade wars yet to cease, with Covid-19 far from contained, with global supply chains disrupted, with commodity prices crashing and consumers turning tail, it does indeed seem so.

    For the Indian economy, which is still to show a clear recovery, 2020 looks worse than 2008 because 12 years ago our economy was booming; this time it is clearly in crisis. In 2008, the Reserve Bank of India (RBI) could cut rates fast, and the government could chop excise rates to boost demand and prevent a credit freeze.

    This time credit growth is already sluggish, and many sectors are in deep crisis — telecom, real estate, power, infrastructure, autos, non-bank finance companies, et al. To top it all we have a deep political crisis and a nation at war with itself over the Citizenship Amendment Act 2019 — a humane law that has been repeatedly misinterpreted by the opposition and Muslims as something against their interests.

    So what can the government do now? One can talk about factor market reforms, agricultural reforms, etc, but in the short term, the remedies are the same as the one adopted by Manmohan Singh: Keynesian pump-priming.

    If anything, this time those fiscal and monetary easing measures are even more warranted, as the Indian economy itself is in trouble. Even if 2020 is not 2008, India should treat it like 2008.

    There are no two ways about it.

    First, the fiscal deficit target of 3.8 per cent is no longer worth adhering to. The government has to use fiscal resources to push the economy forward. This means more capital for banks, more money for infrastructure, and revenue-forgoing packages for telecom and power, among other sectors.

    Second, privatisation must be pushed even harder even if the price realisation are lower than expected. This is the only unconventional source of revenue still open to the government to boost spending without letting the fisc slide out of control.

    BPCL and Air India must be sold, and so must Concor, some land banks, and assets like highways and pipelines. The need of the hour is to raise more resources for the exchequer.

    Many political critics will look at this as selling the household silver to finance current consumption, but when your house is on fire, that’s not the time to worry about whether you are emptying the water tank to put the fire out. The correct sequence is put the fire out, and then worry about how to replenish the water used.

    Third, the RBI must cut interest rates significantly, for this has two benefits: one, it forces banks to pass on the cuts to revive consumption and investment; and two, a drop in rates improves their profits since existing bonds go up in value.

    The Monetary Policy Committee (MPC) can be ignored, or scrapped. The RBI should be empowered to act on its own if the worthies on the MPC think inflation is the bigger threat. Actually, an accelerating slowdown should be the big worry.

    If an economy’s choice is between slightly higher inflation and deflation, one must choose the former any day. The economic consequences of deflation — or even a deepening growth recession — are devastating for a low middle income country like India.

    PS: Prime Minister Narendra Modi must remember Deng Xiaoping’s quote: it does not matter what colour the cat is as long as it catches mice. In Modi’s case, the cat is black money. He must use every opportunity to bring it all back through generous amnesty schemes so that it helps revive the economy. A black cat is as good as a white cat in this situation.

    Tags
    Narendra Modi
    RBI
    black money
    Fiscal Deficit
    Manmohan Singh
    Air India
    privatisation
    Muslims
    economy
    Nirmala Sitharaman
    Monetary Policy Committee
    2008 Financial Crisis
    Bonds
    US Treasury
    brent crude
    BPCL
    CONCOR
    Citizenship Amendment Act 2019
    Covid-19
    Dow

    Comments ↓

    An Appeal...


     

    Dear Reader,

     

    As you are no doubt aware, Swarajya is a media product that is directly dependent on support from its readers in the form of subscriptions. We do not have the muscle and backing of a large media conglomerate nor are we playing for the large advertisement sweep-stake.

     

    Our business model is you and your subscription.  And in challenging times like these, we need your support now more than ever.

     

    We deliver over 10 - 15 high quality articles with expert insights and views. From 7AM in the morning to 10PM late night we operate to ensure you, the reader, get to see what is just right.

     

    Becoming a Patron or a subscriber for as little as Rs 1200/year is the best way you can support our efforts.

    Get Swarajya in your inbox.


    Magazine


    Swarajya Magazine Cover Image
    Merchandise

    Merchandise


      Politics

      Exit Poll: Close Contest In Telangana, Chhattisgarh, Mizoram; Axis-My India Prediction Outlier For Rajasthan, Madhya Pradesh

      Exit Poll: Close Contest In Telangana, Chhattisgarh, Mizoram; Axis-My India Prediction Outlier For Rajasthan, Madhya Pradesh

      Nishtha Anushree
      13h

      Madhya Pradesh: Axis-My India Predicts Huge Victory For BJP As Other Exit Polls Suggest Close Contest With Congress

      Swarajya Staff
      13h

      Rajasthan Exit Poll: Axis-My India Predicts More Seats For Congress, Contrary To Other Surveys Giving Majority To BJP

      Nishtha Anushree
      14h

      Economy

      India's GDP Grows 7.6 Per Cent In July-September Quarter

      India's GDP Grows 7.6 Per Cent In July-September Quarter

      Nayan Dwivedi
      15h

      India's Fiscal Deficit Stood At Rs 8.037 Lakh Crore In First Seven Months Of Fiscal Year

      Swarajya News Staff
      15h

      India's Oil Imports From Russia Surge In November, Rebounding From Maintenance Slump: Kpler And Vortex Data

      Bhuvan Krishna
      15h

      Defence

      In One Of The Largest-Ever Deals, Defence Ministry Clears Purchase Of 97 Tejas Fighters And 156 Prachand Combat Helicopters For IAF

      In One Of The Largest-Ever Deals, Defence Ministry Clears Purchase Of 97 Tejas Fighters And 156 Prachand Combat Helicopters For IAF

      Ujjwal Shrotryia
      15h

      As India Mulls Renaming IAF To 'Air And Space Force,' Tata Forays Into Manufacturing High-Resolution Military Satellites

      Ujjwal Shrotryia
      19h

      Indian Navy's Ships Get Indigenous Firepower Boost: MoD Inks Contract Worth Rs 2,956 Crore For 16 Super Rapid Guns

      Ujjwal Shrotryia
      2d

      World

      COP28: Wealthy Nations Launch 'Loss And Damage' Fund To Help Vulnerable Countries Cope With Natural Disasters

      COP28: Wealthy Nations Launch 'Loss And Damage' Fund To Help Vulnerable Countries Cope With Natural Disasters

      Nishtha Anushree
      13h

      Rebellion In Biden Administration Over Israel Policy: CIA Official Posts "Free Palestine", No Punishment But 'Listening Sessions'

      Nishtha Anushree
      16h

      China Mourns Death Of Henry Kissinger, Crediting Him For Ending Mao-era Isolation

      Swarajya Staff
      18h

      Culture

      Kashi Tamil Sangamam 2023 To Be Held From 17 December To 30 December, Registration Portal Launched By IIT Madras

      Kashi Tamil Sangamam 2023 To Be Held From 17 December To 30 December, Registration Portal Launched By IIT Madras

      S Rajesh
      2d

      M P N Ponnusamy: A Nagaswara Legend Passes Away Almost Unsung

      K Balakumar
      3d

      Streamlined Repatriation: India-US Deal To Fast-Track Return Of Stolen Antiquities

      Swarajya Staff
      4d
      States

      infrastructure


      V Bhagya Subhashini
      1

      Kolkata Metro: India's First Underwater Metro To Be Operational Soon

      3 Mins Read
      V Bhagya Subhashini
      2

      Navi Mumbai Metro Lines 2, 3, and 4 DPR To Be Ready In Two Months

      2 Mins Read
      Amit Mishra
      3

      Deputy CM Ajit Pawar Emphasizes Urgency As Lack of Clearances Delays Revas-Reddi Coastal Road Project

      2 Mins Read
      Amit Mishra
      4

      JSW Infra Inks Pact With Karnataka Government For Rs 4,119 Crore Keni Port Project

      2 Mins Read