Deflation or Disinflation

Deflation is inflation below zero for a prolonged time. But how prolonged? Japan had inflation below zero for a decade so it is said to have deflation. In the indian context it is expected that the Q1 of 2010 would see zero inflation. Inflation is expected to rise after the quarter. This is just disinflation not deflation.

Is this good or bad? Inflation is Going to be below Zero for the first time in the history of Indian economy. In this time of slow down it should boost the demand, but as the key rates are well above the inflation figures the demand creation is abig doubt. with the essential commodity index still showing over 7% I doubt if the common man see the difference.

The good news is that with RBI set to reduce the ratees further by 50 or 100bps the demand might pick up. The domestic demand in India is enough to get the economy back on track.

Marketers around the globe are trying hard to sell, with the demand picking up marketers will be able to achieve the targets.

Good,Bad and Ugly

The forecasts for the year 2009 given by three prominent economists of the country can be categorized as :

1.Good - Arvind Virmani, chief economic advisor of the government;
2.Bad- Raghuram Rajan, economic advisor to the prime minister;
3.Ugly- Rajiv Kumar, head of the Indian Council for Research on International Economic Relations (ICRIER).

According to Mr. Viramani the forecast is a strong 8.5% growth in the fiscal year 2009-10, this is based on the analysis done by him which says that Indian with a strong saving of 36% will allow it to substantially ward off the crisis. Normally the growth rate would be a quarter of the saving so it should be 9% theoretically but because of the global influences it is expected to be around 8% which is a very good number at the present situation we are in.He also says that as india is not a export oriented country the deficit will be less as we import many raw materials to produce the products to be exported so the exports and imports both will decline at same level.

According to Mr. Raghuram Rajan, the GDP growth for the year 2009-10 will be about 5-7%, this is a huge range and the probability of this coming true is also high. The higher level will be attained if the global economic situation improves and the lower range is when the situation worsens further. This is bad but not ugly.

According to Mr.Rajiv Kumar, the results of the ICRIER model that he developed which has given accurate predictions of the 2007 GDP growth of 9% and the first model to indicate the slow down has predicted a staggeringly low GDP growth of just 3.9 % for the fiscal year 2009-10. Ugly right. This models takes into account 10 leading indicators including GDP growth in the US and Europe, factoring in the global slowdown.

If a probabilty has to given to the above predictions :

1. good - 10%
2. bad - 60%
2. ugly - 30%

This a biased prediction as would want the economy to be good or bad not ugly at any circumstances.

India should be prepared for temporary slowdown

Speaking in the parliament P.M. Manmohan singh said "India like other developing economies is feeling the ripple effect of the crisis. Several financial institutions are in trouble and on the brink of solvency."

He also reacting to the steps taken by RBI "Number of unconventional steps are being taken by the government to stem the tide, which is causing a steep decline in the stock markets. It is the worst crisis since the Great Depression and we have taken a number of steps to minimize the impact,"

The Prime Minister, however, assured that all the bank deposits are safe.

He also assured the investors that India has a financially sound system so no fear should be there.

"We are taking steps to combat the liquidity crisis. The RBI has released Rs 25,000 cr for the banking sector. It has also cut 100 basis points in the repo rate to minimize the effect," he said.

Prime minister that the global meltdown will have an indirect impact on the Indian economy which will lead to the temporary slowdown in the Indian growth curve.

The PM also said that India's growth could come down to 7 per cent.



The ripple effect as said by the prime minister has spread like a wild fire with the majority of the industries like I.T., aviation, manufacturing ( alarming IIP of 1.3% ) showing signs of significant slowdown.

The consumers are very vary at the moment because of the double digit inflation and the liquidity crisis hitting the middle class in the form of salary cut and job losses. An increase in home and car loan interests have meant that many middle income families have to cut their festival budgets.

Marketers can expect the sales for the coming festival season the be down if the present crisis worsens.

Nandan Nilekani CEO of Infosys said that the companies can handle the crisis by using strategy.