Booms Day Theory

Issue 6—December15,2008

Predicting a doom is much better than predicting a boom. One admires your foresight if you are right, but never complains if you are not. Given the pall of gloom being spelt out by the global media, with India reluctantly but surely following suit, one would assume that it all is (or will be) lost. But like many journalists who refuse to believe that what you see is what you get, let’s tow the line. You shall see what you shall get.

And it’s not without reason. Diwali in 2008 was nothing short of a festival of darkness for retail sales. However, Christmas sales notwithstanding, the Mumbai mayhem has been much brighter. In today’s context, relief is synonymous with belief. The government believes that relief packages to stimulate growth by cutting taxes and interest rates will save the situation. A dramatic fall in inflation emboldens people. The main saviour, though, would be India’s self reliance.

With domestic savings at 36%, a GDP translation as per convention calculation would be 9%. This is above the government’s current estimate of 7% and way above everybody’s estimate of 5.5%. Besides, oil is at a low of several years. This will help control the fiscal deficit and the balance of payments this is election year. This means populist measures, like fuel price cuts, are on the cards. It also means that government expenditure will increase to fuel growth. Agriculture-led demand will be in focus. Companies sitting on cash will pick up bargains including their own stock. Till the rupee weakens, it will boost exports. Stock markets may have just seen their worst. No doubt the first half of 2009 would be tough, but if nothing else it could be the lull before another upward storm towards the year end. All in all, next Christmas should be better than this one. Whoever wrote the doomsday theory was short of time, also facts.

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