Economic recession and the the indian economy:the fall was inevitable

i just happen to be an average Joe, having some technical engineering background, and a little interest in the economics. neither do i claim to be an expert in the jargon of financial world something like derivatives and other heavy words, which goes completely over and above my head, nor do i claim to be following the world economics in close detail, as to have predicted this slump in Uncle Sam’s back. after all why have i then used this word “inevitable” in my post’s title? the answer shall be clear to you in a short while..

long before this economic downturn at a global scale started, following the fall of lehmann brothers, i asked myself one simple question. i vaguely recalled to myself that 5-6 years back, the bombay stock exchange (BSE) pointed to around 3k. and just a year ago the figure was somewhere close to 20k or something. let me clear to you at this stage itself, that i am not focussing here on details, but only on the bigger pictures i could conceive being only a enthusiast in my nation’s economics. as far as i had the knowledge back then (i mean a year ago), i had an idea that BSE index represents the nation’s economy based on certain parameters. for this it has chosen some important companies or sectors and notes its rise and fall, and then we can extrapolate the findings to get a rough figure for the overall growth of our nation.

by this line of thought then, i concluded that our nation has achieved a tremendous growth in the last half decade. i also thought that our nation which only accumulated an index of 3k in over 50 years, more than quadrupled the figure in just over 5 years. that means we must be able to see crystal clear changes in the basic indiacators of an economy, namely:transportation, power, health facilities etc., but was this the case?

the answer is an absolute NO.
i thought thereafter..all this hoopla over our economy growing, india poised to become a superpower, elephant’s call to the dragon, and blah-blah, all these are based on just feel good factors. no ground work had been done, no new industries built, and yet our stock index and the imaginary indian economy ( as being a direct extrapolation of the stock index) kept soaring. i dont know why the big analysts keep projecting us to be growing each year as so and so, and keep us in an opium satiated daydreaming, much like the chinese did way back 4 decades ago. i believe  the guys at the top, get so much involved into jargons, that they lose touch with the basics. the truth is being a part of any system, you cant see the reality or notice the changes, which a man outside or a layman can easily see—to help you visualize this, i remember when i was a child and everyone said “kitne bade ho gaye ho”, and i used to think how come i never notice any change in me, the point being when we are a part of change that is happening day by day, we dont see the infinitesimal change in us/system—, and let me elaborate more on this.

i was basically out of touch with the newspapers in those days, and so i banged on the idea that the stock index is actually ballooning–god might know for what reasons–by this line of thought:
when the late dhirubhai ambani deceased, a few years ago, the property announced on the news was around 60k crores or around 12billion $ at that time ( i took 1$=50 Re. at that time, for my easy mental conversions).though recently i heard the joint assets of the companies run by both his sons, must amount to greater than 1lac crore and plus, yet so much growth in 4-5 years seemed unreasonable to me. i thought what we actually quote for big companies is their assets in dollar value. so that the same company which has 12billion dollars of worth, at that time, shall quote 15 billion dollars of worth, due to a strong rupee let’s say 1$- 40 Re.
voila!!!, and you think the company is really growing at breakneck speeds. i think that mukesh ambani who was announced as the world’s richest man must have been so, by this very logic.
or else how does one explain so much rise and fall in a company’s worth day in and day out.

a company such as reliance, which is engaged in petroleum refineries for example, take years to build such a refinery. the channels to get their raw materials, and their customers all are a result of years of being in the industry. petroleum product’s consumption doesnt double up all of a sudden, and doesnt halve the next moon change. we see rise and fall in their prices,or their indices, which have become totally disconnected with the real output.
how do you explain otherwise, a price of 140 $/ barrel of crude oil one day, and of 40 $/barrel the next month. did the petroleum consumption really increase to triple and and then fall back to normal within a year!!! if the accumulated demand of oil in terms of increase in no. of vehicles , demand in industries and in farm lands, nothing ever reached close to even 15% a year, how come prices of crude oil increase to such figures? and how do they fall so sharply again?

i believe the stock markets fail very badly to capture the economic condition of an industry or a company. seeing everything in dollars do give us a comaprative stand with others, but also at times fail to capture the actual worth of a company or a nation. india today might be a 1.1 trillion $ GDP nation, but with a strong rupee might become 2 trillion $ nation, and surpass china!!! (its a long shot, don’t believe it). the actual worth is in terms of what we have on a physical basis. the roads, railways, industries. do not believe in these stock indices. it was 16k one day. it is 9k the other. it doesnt mean we became poorer by half. the stock was ballooning due to FDI’s and all other craps, and i knew the balloon would burst one day.
it sure did on 15th september 2008.

to all those indians, gloomy out there  (unless you lost money in stocks), thinking what trouble has befallen us…
Don’t Worry, Be Happy..
sab theek ho jayega.
we are what we were…

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