The breeziest word of the modern days happens to be “Economic Meltdown”. This has caused unwanted panic and has resulted in the downward trend of the economic scenario and negative outlook in the minds of every common man in every nook and corner of the world. So let us know the real fact about this economic meltdown and its impact in India. Finally we would look through some practical and proven strategies which would help the economy to revive and gain economic stability.
Economic Meltdown:
Economic meltdown is a situation which is characterized by economic blocks. Economic systems adopt different levels of fluidity depending upon the level of controls and free market enterprise systems contributing to the overall size of the economy. This situation is not permanent. It changes at a period of time when the economy regains its stability.
Situations leading to the Economic Meltdown:
The following situations are likely to take place before the economic meltdown:
Capital appreciation based on perceived
rather than real value based on purchasing
power at a specific time led to overheating
of capital blocks.
Look at capital markup in the stock exchange.
When returns on capital increase
disproportionately from its purchasing power
and usable value, the economy follows the paths
of casino.
Investment into Fluid capital started getting
precedence over the creation of physical assets.
Directions of money flows from capital assets to
fluid assets become overheated.
Causes for the Economic Meltdown:
Our global society has avoided breakdown for a very long time. Because of this delay, five serious stresses have been building up, stresses that are interacting dynamically at every level of our civilization. They include rising economic stress caused by growing inequality, with its accompanying threat of social chaos and extremism; demographic stress resulting from much higher birthrates in impoverished countries than in affluent nations, as well as from the growth of unstable mega-cities; environmental stress caused by deteriorating natural resources, particularly in countries that can’t defend themselves from corporate predation; climate stress brought about by global warming; and energy stress from the imbalance between our rising energy demands and our plateauing energy supplies. These stresses are aggravated by the growing access that small groups of people have to weapons of mass destruction, and by the increasing interconnectedness of all parts of the global system. Globalization has created a situation where economic problems in one country, like the sub-prime fiasco in the United States, can quickly infect every other economy in the world.
Energy stress is another important factor that contributes towards the economic meltdown.
Effects of the Economic Meltdown:
Indian Job market is witnessing a slump as the jobs that were available in huge numbers are not available at all. Even though, job seekers are leaving no stone unturned for acquiring a job, yet they are not able to secure a job for themselves. This trend is going to continue in the days to come as the situation is showing no signs of recovery leading to the escalation of problems for the job seekers. The Global Economic Meltdown that has hit India is equated to the Great Depression that happened in United States of America. The job market is badly hit, great players like Satyam, Microsoft and Converges downsized their strength to fight this crisis situation.
Here is the table depicting the effects of the economic meltdown:
Starts and Closures in India
2000 2002 2004 2006 2008
New Firms 584,892 594,369 574,300 545,000 550,100
Firm Closures 531,400 497,246 542,831 568,300 584,500
Bankruptcies 63,912 50,516 35,472 39,719 38,155
Though the bankruptcies have reduced in these years, the firm closures have only been increasing due to the recession and depression in India. Owing to this situation, establishment of new firms have not been as increasing as expected. Only a marginal amount of increase is seen in the economy.
This economic meltdown also leads to the following kinds of unemployment:
? Cyclical Unemployment
? Frictional Unemployment
? Structural Unemployment
Example of the effects of the Meltdown in Tamil Nadu:
CHENNAI: The impact of global economic meltdown coupled with the problems related to competition has begun to reflect on the sale of packaged drinking water in the city. Nearly 30 units that were functioning in the suburbs have closed down in the past one year as they were unable to withstand the price war and competition. With the industry feeling the pinch of the economic downturn, the packaged drinking water manufacturers raised doubts on whether consumption patterns of their products in the last few years would be maintained this season. The sale of packaged water, including pet bottles, bubble-top cans and water sachets, peaks normally between April and June. Last year, the total consumption rose up to 40 lakh litres of water a day but this year the total consumption has reduced to 30 lakh litres of water a day due to its price. Many unit owners said though the production cost was on the rise, they were unable to increase the cost. Despite this situation, the total consumption reduced on a whole.
Exceptional Area Unaffected by the Economic Meltdown:
KOLKATA: The global economic meltdown has taken toll on India’s diamond exports.Hit by a contraction in demand for diamond in the US and European
markets, export of cut and polished diamonds from India are believed to have dropped 8.24% to $13 billion in 2008-09 from $14.2 billion in the previous year, according to provisional estimates. However, driven by a 36.2% growth in rough diamonds exports at $772 million, total exports of gems and jewellery from the country touched $21.18 billion in 2008-09, slightly above the previous year’s figure of $20.81 billion.
Opportunities to the Regulated Economies during the Economic Meltdown:
? Investor systems receive public funds associated
with safety.
? Capital flows remain more regulated and
structured.
? Market demands are less affected in capital
regulated economies.
? Opportunities for the market regulated economies to tap the
market of the heated economies increase if the creation of the value of
raw material through technology and labour remain competitive.
Practical Steps to revive the economy:
The following are the practical steps we need to take to get wealth:
1. Review the strength and weaknesses of the economy
2. Self employment to be increased
3. Apt economic planning
4. Procrastination to be avoided
5. Be focused and remain focused
6. Tax holidays can be announced
7. Total savings to be boosted up.
The monetary policy of India should also be revised enough to meet the turbulent times during meltdown of the economy. RBI’s intervention is recommended for the benefit of the economy.
Producers can become more alarmed and snatch the scenario to ruffle up the profits of their competitors. Because the epitome “Consumer is the King” has changed to “Producer is the King” due to the economic meltdown.
The developing countries had been left with the burden of the crisis, aside from the fact that they had not participated constructively in the discussions to find remedies. Rich industrialized nations had, as an immediate response to the crisis, created economic stimulus packages meant to provide immediate and short terms remedies. Funding to ailing industries and companies to stay afloat in a bid to stem the economic crisis is also encouraged. Others are purchase of bank toxic assets in order to sustain the ability of the banks to still offer credits and or to recapitalize.
Conclusion:
Developing economies must see the crisis as an opportunity for global economic renewal, with the creation of a new global financial and economic order as the focus. Let us hope that another Keynes would rock the world with his successful theory to revive the global economy.