Dream run in global boom, shaky in slowdown
SOURCE: The Telegraph
DATE: March 21st, 2009
Amar Malhotra (name changed) was a manager with Evalueserve, a global knowledge processing firm, in Noida till last month. The 29-year-old had a six-figure salary. He is jobless now.
Malhotra says he is not alone; most of his 150 colleagues have either left or are looking for alternative jobs.
Evalueserve, which mostly serviced western financial and banking clients, did not lay them off, but shut down the Noida office “in a temporary arrangement” and transferred “resources” to other centres.
Often the transfers, Malhotra claimed, took place without enough work to go around at the new location, which saw many leave for rival firms, try out alternative professions or just sit out the slowdown.
“The landscape has changed since 2005-06, when the Indian economy and the IT services sector in particular were growing at a fantastic pace. Toppers from management institutes and those with international degrees in finance were among our colleagues… now these bright brains are all ex-colleagues, linked together by networking sites like Facebook.”
India’s economy grew an unprecedented 9.4 per cent in 2005-06, a year after the UPA took power. Industry and services grew over 10 per cent and the farm sector by almost 6 per cent.
Till 2007-08, the growth of 9 per cent or more — the world’s second-fastest after China — spawned average annual salary growths of 13.7 to 14.8 per cent, often the best hikes globally.
Much of the salary jumps were in the “happening” infotech, knowledge processing and financial services sectors, according to global HR consultant Hewitt Associates.
The UPA has not missed a chance to claim credit then, and now. In his interim budget speech last month, stand-in finance minister Pranab Mukherjee said: “Our policies ensured a dream run for the economy… sustained growth of over 9 per cent for three consecutive years with per capita income growing at 7.4 per cent annually.”
However, many economists say the UPA government merely reaped the benefits of reforms initiated since 1991 and had done nothing spectacular this time to claim credit.
One of them is Ashok Desai, former chief consultant to the finance ministry who had helped Manmohan Singh craft the reforms of the early 1990s. “They (the Congress-led government) had been riding an economic boom that wasn’t of their doing… there was global boom and India could take advantage because of the reforms it had undertaken earlier.”
But where many agreed that the government scored was in the rural sector. Its National Rural Employment Guarantee Scheme proved a success. The scheme did provide jobs to very poor people in many parts of the country, despite accusations of corruption and funds being siphoned off.
Says N.R. Bhanumurthy of the Delhi-based Institute of Economic Growth: “If there is one thing which this government can show off to voters, it would be the NREG scheme. It is possibly their biggest achievement.… It helps industry and services to benefit from the increased demand for products.”
Some 3.5 crore families benefited in 2008-09 alone, with 138.76 crore man-days generated during the year.
Other than the job scheme, a Rs 71,000-crore write-off of farm loans, rural housing, roads, rural health insurance and a social security cover for unorganised sector workers could also prove potential vote-winners for the UPA.
However, the picture is not bright when it comes to running the economy, though the government had to perform within the constraints of coalition politics.
The UPA ran up huge deficits. The fiscal deficit is expected to exceed Rs 362,000 crore in 2009-10. This gap was Rs 326,515 crore in 2008-09, more than double the budgeted figure of Rs 133,287 crore.
The deficit has set off alarm bells. Rating agency Standard & Poor’s estimated India’s budget deficit might increase to 11.4 per cent of the gross domestic product for 2008-09 from 5.7 per cent in the previous year.
Experts aren’t pleased, either. “The government has thrown money into oil and fertiliser subsidies with doubtful value to the poor, diminishing the India story,” says former Planning Commission member S.P. Gupta.
The government, too, seems in less of a hurry to crow about the economy, faced with a situation created largely by global circumstances beyond its control.
According to a survey by the Centre’s labour bureau, Indian companies, mostly exporters, shed as many as five lakh jobs during October-December 2008 as the global slowdown reduced demand for their products abroad. Exports make up 20 per cent of the national income.
Scandals and protests didn’t help matters. “Scams such as Satyam and conflicts like the one over setting up of the Nano plant (in Singur) did not help our image,” says Gupta.
As the global downturn spread, consumers and investors started spending less. The result: the demand for goods and services plunged.
Industry, which saw its products going unsold, shrank 2.3 per cent in the November-December 2008 and then by another half a percentage point in January this year.
The fall in demand came with a rise in interest rates last year, which put off consumers planning purchases with loans. The spending squeeze hit real estate, automobiles and durables like TV sets, deepening the slowdown.
The government cut excise and service in the hope lower prices would spur demand but that has been slow to happen.
But finance ministry economists claim a recovery is under way. As an example, they point to car sales which, after falling for months, jumped 21.8 per cent last month, partly because of the tax concessions. Desai believes the timing is right for the UPA exit. “In a way, the Congress-led government is lucky to be going out… the slowdown can only deepen in the coming months.”
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