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.

Economic recovery patterns

The present economic crisis has left the best of the economists searching for the bottom.

How will the bottom be?

The recovery is expected to be in any of the three ways:

1. U-recovery
2. V-recovery
3. L-recovery

U-recovery: The most probably the recovery from the present crisis would be a u one. There is a 60% chance of the recovery being this type and the bottom is expected to last for at least an year so the stability can be expected to come only in the year 2010.

V-recovery: This is the next probable recovery type. In this there would a drastic recovery happening once it touches the bottom. The probability of this type of recovery is only 30%, though it is the most desired. This type of recovery means that in mid 2009 we can see our economies back to normalcy.

L-recovery: This is the most hated type of recovery with the bottom lasting for a long time may be even a decade and then a recovery. The probability is only 10% Thank GOD.

What ever be the type of recovery the economy will bounce back. "What goes down has to come up"

Warning bells

After the Indian economic summit on Sunday the top leaders of the India inc. have warned of bad situations if the government doesn't take appropriate action to make funds available for the companies.



The corporate heads have told that they will forced to layoff or take other punitive action to reduce the costs. this is evident from the placements of premier b schools, the placements at IIM-A have seen a sharp decline in the average salaries. the salaries have fallen by over 42 percent compared to the last year and the overseas placements have fallen by 60 percent. The case is same in other premier b schools and IIMs across India.



The R.B.I is expected to cut the CRR by 200-250bps and SLR by other 100bps to make the banks lend to the corporates. With the general elections coming near the government is expected to take unconventional steps to induce liquidity in the market.



The mood at the summit was nothing but upbeat and the message was simple we need to act agressively and quickly.