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'Goodbye to Global Meltdown'

India will shake off the global financial crisis’ effects soon, RBI governor said

The Reserve Bank of India has finally succumbed to the pressure and mouthed what the markets have been screaming for the past two months, that a recovery is in sight. It will surely come as a great shot-in-the-arm for all those who have been talking up the markets from the times the latest rally really started.

According to the top Central banker, D Subbarao, the chances of a global recovery from the effects of the global financial crisis are increasing and along with that is the likelihood of a revival in the Indian economy.

However, by doing so, he may well be going against the views of a number of domestic and foreign institutions who have indicated that while there is no credible sign of a recovery in economic numbers, yet there could be a case for a recovery in 12 months to 18 months time. At the moment what we have, to base any calculations of a recovery on, are confidence building exercise being carried out by large investment entities asking fund managers about their attitude to the rise in sentiment towards the… optimism.

Basing his premise on the fact that the various stimulus measures, and the trillions of dollars that it involves on a global scale, will have had time to effect a turnaround and bring the markets worldwide back to their 2007 high, Subbarao said, "As the monetary and fiscal steps bite, and the calm is restored in global markets, we can see an economic turnaround later this year."

He was speaking at a financial managers’ summit in Mumbai.

Providing support to the governor’s assertions is the Swiss-based International Institute for Management Development (IMD), which has ranked India in the 13th position out of 57 countries, indicating that it is among the best placed countries to overcome the effects of the global financial crisis and come out more competitive.

Perhaps giving his opinion on why India may recover faster than others, the governor said that the country’s low inflation-regime, comfortable forex situation, less dependence on exports and a vibrant financial system, would put it in a position to be the first out of the blocks when recovery starts taking effect. These very strengths, according to the governor, would also ensure that getting rid of all the measures that were put in place to avoid the worst of the global meltdown’s consequences on India, would be easier.

However, he had some bad news for those interested in more fiscal stimulus measures, saying that in this new situation, the stimulus measures that India has already taken will be enough to pull the country out of the slowdown, at least the chances for announcing further stimuli would get reduced considerably. This may well be his reaction to the government’s intent to go on a massive borrowing drive to power the whole industrial complex as well as create corporate and retail demand.

Cautioning banks on non-performing assets, the governor indicated that the forthcoming period may well see a rise in bad loans, despite the Indian banks' regulations being quite tight.

The governor said that what had kept the Indian economy from faltering further was the strong demand from rural India as a result of the farm loan waiver by the government. In cities, the 6th Pay Commission award kept demand relatively lively.

The net result of the whole exercise would be a GDP growth for India that would reach the 6 per cent mark, he concluded.