The Hindu Business Line : Is the fear of US recession affecting our markets?

Though it is not officially declared, the recessionary trends in the US are getting more pronounced. So much so, the Fed has resorted to frequent interest rate cuts to boost the economy. The sub-prime crisis has affected the purchasing power of the Americans and there are no buyers for homes, in spite of the very low interest rates.

The sharp appreciation of the rupee has made the Americans put off non-priority consumption and this has taken its toll on our exports.

This may impact our IT industry and the companies will need to move up the value chain. Exporters will also have to diversify into other markets such as Europe and West Asia.

The Government, on its part, has announced some relief measures for exporters. The impact on Indian banks is likely to be minimal, as they have little exposure to the sub-prime market.

Although the US has cut its interest rates, the RBI may not be in a position to follow suit due to inflation. Though this may increase the interest rate differential, we will have to learn to live with a stronger rupee.

*R. Vishvesh, Mumbai

Massive job losses, housing market meltdown, credit crunch, fall in the construction of new houses and sharp rise in foreclosures have contributed to the fear that the US would experience a near recession in 2008. High oil price has also added fuel to the fire. As a result of all these, the rupee has appreciated considerably against the dollar. This has affected the exports of leather, handicrafts, marine products and textiles. In rupee terms, export growth fell to 7.7 per cent during April-December 2007 compared with 25.2 per cent in the previous fiscal.

This has dented the exporters’ margins and the Government has cut Customs duty to some extent. The Government is also contemplating easing domestic regulations and seeking reforms in market access abroad.

Though the Government can dole out sops in the short-term, improved productivity alone can help in the long term.

The manufacturing and service industries should compete for a share not only in the US but also in other countries like Europe and China. And in the stock markets, despite high volatility, FIIs still prefer India as the fundamentals are strong.

T. S. Sundareswaran, New Delhi Economists feel that the US recession will have a significant impact on Asia, as it is mostly depended on exports. But as India’s exports share to the US is less than that of other Asian countries, the rest of the Asia, including China, will be the biggest victims.

The sub-prime crisis in the US would serve as a wake-up call for central banks around the world. Let us hope that the US will take steps to contain the impact of a sub-prime crisis that is threatening the financial stability of the entire world. India can still grow between 9 and 9.5 per cent as its fundamentals are strong.

T.V. Jayaprakash, Palakkad

The state of affairs in the US economy impacts the markets in Asia and India. In spite of the interest rate cuts by the Fed, any further reports of increase in the unemployment rates in the US can adversely impact the sentiments of the global economy.

V. Venkitasubramanian,

Kochi

In the globalised environment, various economies of the world are closely interlinked and the bad news about any one country affects other countries. That is what is happening at present. FII funds are getting diverted to other emerging markets and even the domestic political situation is also not too encouraging.
Krithivasan, e-mail
The sub-prime crisis has caused the markets to fall globally. But as far as the Indian markets are concerned, the volatility can be attributed to the Budget proposal, in which the capital gains tax was increased by 5 per cent to 15 per cent. It may take some more time for the market to adjust to the new tax regime.
T. R. Anandan, Coimbatore
Responses to Sticklish Issues dated March 3
The Finance Minister, Mr P. Chidambaram, has worked hard to present a populist Budget, with an eye on the forthcoming elections. The Rs 60,000-crore farm loan waiver will enable the small and marginal farmers to come out of their debt trap and even obtain fresh loans.
In this context, the question whether the Budget package would work for the poor has raised doubts. The loan waiver may not help the farmers in the long run, as they will need another loan for their next crop. In the absence of adequate rainfall and due to the high cost of inputs they cannot be assured of good returns for their produce. The Government could have announced the relief many years ago so that hundreds of suicides could have been averted.
In an effort to boost their morale, the farmers may be issued with smart cards to enable them procure essential inputs like seeds and fertilisers at low costs.
S. Nallasivan, Tirunelveli

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