Time to guard against global woes

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Bikky Khosla | 12 Jan, 2016
There is a bumpy road ahead for the world economy in 2016 -- the persistent China panic contains this unnerving message. The second largest economy in the world is facing a slowdown, which in turn may drag down the emerging market economies. It is also feared that a slowing China could affect the rich-world markets and even derail the US economic recovery. The IMF has cut the global growth forecast for 2016 to 2.9 percent, pointing out downside risks, including slower emerging market growth, financial stress around the US tightening cycle, weak commodities prices, and heightened geopolitical tensions. Today, India is, of course, in a better place than other emerging nations. Nevertheless, its resilience may be tested this year.

What could be the impact of the China slowdown on us? The Commerce Minister last week said that the yuan devaluation is a "worrying" development, which will make Indian exports expensive and widen our trade deficit with China. These concerns are worth considering. Our export sector is already going through a rough phase and a slowing China, which accounts for nearly one-tenth of our merchandise trade, may hit our exports further. So, the Centre should constantly monitor this situation so that cushion measures, if required, can be taken with no delay. At the same time, I think the reduced possibilities for the Chinese companies in their own market could be taken as an opportunity to woo them invest in our manufacturing and infrastructure sectors.

As the global uncertainties continue, I think it is the right time to take steps to boost the domestic economy. Some media reports say that the government is likely to step up public spending in rural sectors like irrigation and rural roads. It is pretty good thinking, but at the same time I think special attention should be given to the agriculture sector, which has been hit by two consecutive droughts. Revival of this sector holds the key to rural demand revival. Similarly, more needs to be done to secure the health of the ailing banking sector. Infrastructure, including the highways and roads sector, which is facing slump in private investment, also requires special attention. In the light of this, the upcoming budget will be crucial for the government.

Meanwhile, it is widely anticipated that the third quarter results of corporate India will remain weak. According to an estimate, Sensex earnings for the period are set to drop 5 percent. It is pointed out that the damage to the top line will be the result of collapse in commodity prices. Low consumption spends and sluggish investment, especially in the private sector are also playing spoilsport. Besides, demand for both consumer goods and capital goods has remained very weak. Another latest report adds that consumer confidence plunged to a historic low in December. These data sets clearly show that all is not well in the economy, and the time to act is now.

I invite your opinions.