Simarprit’s Weblog

The Great Indian Economy Melt of 2013 August 20, 2013

Indian Rupee continues its downward slide, all measures taken by the Government are proving to be ineffective to stem its fall. Would this fall lead to a free fall of Re? Is this the beginning of the end of the dream run Indian economy enjoyed for almost 20 years? All this while, we thought India had sound fiscal policies, we thought our policies were sound enough to insulate us from global economic collapse, what happened? What triggered this economic earthquake?  Is it now threatening to put a country of over 1 Billion to an economic mess of magnitudes not seen before?

To me, it is all very simple. As a nation we didn’t behave in a prudent manner and control our extravagant corruption and channelize our resources productively when the global economy was experiencing rough weather.

Although 7 years of Dr. Manmohan Singh’s 9 plus at the helm of the country were “economy positive” years, last 17 months have wiped away faith and trust in his and his teams abilities to steer us out of this. How can collapse of Indian Currency be controlled? Is it possible to control it? Is it possible for IMF to induct over $500 Billion which maybe required to stabilize India Rupee? Even if IMF decides would it have that kind of will and resources to pull this through? Does this precarious state of Indian economy make India vulnerable to fiscal policy mutilation/ manipulation by powers that be? Would a crumbling Indian economy lead to negative outlook for other economies in the region? Would that composite negative outlook be bad enough to trigger next wave of global economic downturn?

These all are no longer devil speak things, they are a distinct possibility. With little to stabilize economy in the offing, it is time for residents of this tumbling economy to look at their family and business stability. It is time for them to work towards putting in place their Plan B. What could be Plan B for a family or a small business enterprise?

In my humble opinion:

1. Convert savings to multi-currency deposits from pure Indian Rupee deposits if they are that much and it is possible to do that.
2. Convert them to gold deposits to the extent possible.
3. Stop lifestyle spending.
4. Reduce necessary expenditure by 10 to 15 percent.
5. Take an additional revenue generating activity if your spare time permits.
6. For small business, defer all expansion and focus on maintenance and sustenance of existing income. Rework strategies to the extent they lead to less cash burnout.

Situation is bad enough continued fall of Indian Rupee can lead to a sudden drastic devaluation of the currency by 100%/ 200% overnight leading to socioeconomic rioting and widespread panic.  Even if this crisis is contained, it is very likely that its repercussions would linger on for 4-5 years. This would lead to growth of economy going negative or at best dropping to zero. We have millions of students getting ready for job market, with this as the state of our economy they are unlikely to bag jobs which map with their qualifications and meet their aspirations. This would lead to increase in number of patients of depression and cases of self-immolation. The more I look at the scenario, more serious and hopeless the situation looks.

My suggestion, strap-up, this is the time to do a quick reality check and chalk out your plan for your family and business to sail through these troubled waters.