Thiruvananthapuram: Experiencing the breathtaking scale of the current economic crisis, it seems as if an outrageous Rajinikant joke has come true. One of the most far-fetched of Rajinisms says that when the superstar vomited in his dream tsunami struck the world.
The cause of the current disaster that threatens to devour emerging economies like India seems equally preposterous. It was triggered by the mere fantasy of another 60-something bald man. On June 19 this year, Ben Bernanke, the US Federal Reserve chairman, sold his country a near-impossible dream, like a shrewd father appeasing his demanding children for the time being. And the rest of the world crashed.
“If the unemployment rate falls to 7 percent by mid-2014, the Federal Reserve might stop buying US bonds and mortgage-backed securities,” he said.
Bernanke did not even say that the stimulus package for the ravaged American economy will be withdrawn. But foreign institutional investors, thinking that they heard Bernanke say that the American economy had bounced back, collected all their dollars parked in the Indian capital market and flew back to what they mistakenly thought was newly-prosperous America. The rupee went on a free fall, stock markets bombed and all the money started chasing gold.
Theoretically, Kerala should benefit from the Bernanke effect. It has a thriving service economy, which gets paid mostly in foreign currency. It has a huge non-resident population who will now get more rupees for every foreign currency they hold. The state also has huge agriculture exports.
“All those who earn foreign exchange, exporters or non-resident Keralites or even the hospitality industry, will gain in the short term because of the possibility of converting foreign currency into more rupees,” said economist Dr K.N. Harilal.
But there is a catch. “In the long run competitive pricing will do away with the advantage,” Harilal said. “Agriculture exporters, as part of gaining competitive edge, will keep their prices lower. We have experienced this phenomenon before,” he said. M. Vasudevan, the senior business development manager of Technopark, too expressed fears of unhealthy competition.
“It is definitely an advantage for exports when the rupee value depreciates but it won’t last,” Vasudevan said. “Our foreign clients, who are also aware that we are getting more, will negotiate accordingly. Next time they will say that your rupee value is low so you have to cut down your cost. We will be forced to do it. This had happened in 2008,” he said. Once the cost is cut, it will be hard to get back to older prices.
However, Startup Village chairman Sanjay Vijayakumar said that the time was ripe for NRIs and foreign funds to invest in technology startups. On the downside, he said that the cost of overseas expansion would become expensive.
Non-resident salaries too could be hit. “When there are more rupees to be got, foreign employers are bound to cut wages of unskilled and semi-skilled workers, especially the thousands working in the Gulf construction sector,” Harilal said.
Manju S. Nair, associate professor of economics, Kerala University, said that the gains from the fall in rupee value would not be able to counter the adverse impact of the current crisis. “Figures show that European Union economies like Greece, Hungary, Poland and even Germany are still in the doldrums. America economy, unlike the impression that Bernanke had unwittingly created, is showing no sign of improvement. Exports can go up only if there are buyers,” Manju said.
The increase in import bill, especially of petroleum products, will affect Kerala the most. “There will be an across the board increase in prices. And being a consumerist society, highly dependent on others even for our basic needs, Kerala will be the worst hit. Since we are at the southernmost tip, the transportation burden will be heaviest,” Manju said. Dr Harilal said that the renewed clamour for gold would push middle-income houses into serious financial crisis.
The common Malayali’s dream of constructing a house or buying a car too might turn sour. “Malayalis, more than anybody else, take loans to build homes and buy cars,” Manju said. Inflationary pressures will force banks to up lending rates. HDFC Bank and Axis Bank have already increased their lending rate despite RBI’s diktat not to.
http://www.deccanchronicle.com/130821/news-current-affairs/article/scourge-sixtiesScourge of the sixties
Thiruvananthapuram: Experiencing the breathtaking scale of the current economic crisis, it seems as if an outrageous Rajinikant joke has come true. One of the most far-fetched of Rajinisms says that when the superstar vomited in his dream tsunami struck the world.
The cause of the current disaster that threatens to devour emerging economies like India seems equally preposterous. It was triggered by the mere fantasy of another 60-something bald man. On June 19 this year, Ben Bernanke, the US Federal Reserve chairman, sold his country a near-impossible dream, like a shrewd father appeasing his demanding children for the time being. And the rest of the world crashed.
“If the unemployment rate falls to 7 percent by mid-2014, the Federal Reserve might stop buying US bonds and mortgage-backed securities,” he said.
Bernanke did not even say that the stimulus package for the ravaged American economy will be withdrawn. But foreign institutional investors, thinking that they heard Bernanke say that the American economy had bounced back, collected all their dollars parked in the Indian capital market and flew back to what they mistakenly thought was newly-prosperous America. The rupee went on a free fall, stock markets bombed and all the money started chasing gold.
Theoretically, Kerala should benefit from the Bernanke effect. It has a thriving service economy, which gets paid mostly in foreign currency. It has a huge non-resident population who will now get more rupees for every foreign currency they hold. The state also has huge agriculture exports.
“All those who earn foreign exchange, exporters or non-resident Keralites or even the hospitality industry, will gain in the short term because of the possibility of converting foreign currency into more rupees,” said economist Dr K.N. Harilal.
But there is a catch. “In the long run competitive pricing will do away with the advantage,” Harilal said. “Agriculture exporters, as part of gaining competitive edge, will keep their prices lower. We have experienced this phenomenon before,” he said. M. Vasudevan, the senior business development manager of Technopark, too expressed fears of unhealthy competition.
“It is definitely an advantage for exports when the rupee value depreciates but it won’t last,” Vasudevan said. “Our foreign clients, who are also aware that we are getting more, will negotiate accordingly. Next time they will say that your rupee value is low so you have to cut down your cost. We will be forced to do it. This had happened in 2008,” he said. Once the cost is cut, it will be hard to get back to older prices.
However, Startup Village chairman Sanjay Vijayakumar said that the time was ripe for NRIs and foreign funds to invest in technology startups. On the downside, he said that the cost of overseas expansion would become expensive.
Non-resident salaries too could be hit. “When there are more rupees to be got, foreign employers are bound to cut wages of unskilled and semi-skilled workers, especially the thousands working in the Gulf construction sector,” Harilal said.
Manju S. Nair, associate professor of economics, Kerala University, said that the gains from the fall in rupee value would not be able to counter the adverse impact of the current crisis. “Figures show that European Union economies like Greece, Hungary, Poland and even Germany are still in the doldrums. America economy, unlike the impression that Bernanke had unwittingly created, is showing no sign of improvement. Exports can go up only if there are buyers,” Manju said.
The increase in import bill, especially of petroleum products, will affect Kerala the most. “There will be an across the board increase in prices. And being a consumerist society, highly dependent on others even for our basic needs, Kerala will be the worst hit. Since we are at the southernmost tip, the transportation burden will be heaviest,” Manju said. Dr Harilal said that the renewed clamour for gold would push middle-income houses into serious financial crisis.
The common Malayali’s dream of constructing a house or buying a car too might turn sour. “Malayalis, more than anybody else, take loans to build homes and buy cars,” Manju said. Inflationary pressures will force banks to up lending rates. HDFC Bank and Axis Bank have already increased their lending rate despite RBI’s diktat not to.
http://www.deccanchronicle.com/130821/news-current-affairs/article/scourge-sixties