Global Business Turmoil

Global economic conditions are showing signs of an epidemic spreading through a spiraling inflation and rise in oil prices across countries around the globe. The depressive feeling triggered by news all around fuelled by newspapers, internet, TV channels and all other sources has set off the panic button bringing down economies and that’s what is happening these days.

It started with a sub-prime crisis boiling in USA, which formed a chain-reaction of events to follow, Oil barrel prices springing from $99 per barrel to $135 recently, forcing many countries to increase domestic market fuel prices, it’s not fuel supply that’s running short, but the weak dollar, it’s true that Uncle Sam control’s world economy by and large.

If Dollar prices rise it creates a problem, if Dollar prices fall it again creates a problem, rest assured the American economy is never going to go bust, but the Dollar as a currency has the power to crumble or lift up a country’s economy, just when the falling dollar prices was causing loss in profit margin’s of Indian IT firms, hitting exporter’s, now the dollar value rising against the rupee is going to increase our trade deficit.

I don’t know how are we going to sustain our economic growth above 8% during the current fiscal year, it seems like a well planned financial coup, what’s your feeling, let’s look at the pattern of economic events which have taken place recently which have kept us on the edge.

The Trend

Sub-prime crisis begin in USA -> Falling dollar value against rupee eats up profit margins of IT companies and exporters -> Indian Share market on a new high(Jan’08) -> Government announces a common man friendly budget revises taxation slabs, announces loan waiver package for farmers -> Dollar continues to remain weak against rupee after March’08 -> Symptoms of economic depression set in USA Economy -> US Fed Reserve goes on interest rate cut drive -> Indian economy starts facing the heat of downfall in US Economy -> Inflationary trends crop up in Indian economy -> foreign investors begin pulling out money from Indian share markets post Apr’08 -> Unemployment, Layoff’s increase in USA -> RBI hikes CRR ratio, leaves interest rates untouched -> Rising commodity prices -> Government resorts to regulation of prices for essential commodities -> Losses for Oil Companies in India mounting -> Government forced to hike fuel prices -> Market indices heading down south -> Inflation touching a 45 month high -> Dollar climbs against rupee.

Oil Prices: Crude oil prices at $99 – Jan’08 touching $139 – Jun’08 (+$40)

Inflation: 3.83% - Jan’08 doubles to 8.24% - June’08 (+4.41)

Dollar value Vs Rupee: Dollar falling against Rupee Jan’08 – 39.28 to Jun’08 – 42.59 (+3.31)

Share Market: BSE Sensex touching 21,000 in Jan’08 brought down to 15,000 in Jun’08. (-6000)

The above trend depicts a common factor, amongst all the turmoil Mr. George W Bush has played a cool customer, like a director of a movie watching his film play on the big screen, since he is about to vacate the white house for Mr. Barack Obama to join the presidential office. US Fed reserve could not do much to save the American economy from entering a depression phase, what was done to strengthen the dollar? I really don’t know.

I really laughed off an article from Rediff archive, which predicted Sensex to cross 28,000 mark by mid 2008, where are we now reality check 15,000, do you think the Indian tiger can really climb high free when the American Eagle is sitting on the top ruling the roost of the global economy, the food crisis, fuel crisis then starts a blame game, where India and China are highlighted as culprits, in the name of producing bio-fuels to reduce carbon footprint, it does not help Uncle Sam, they are actually gulping up more natural resources required to manufacture one barrel of oil compared to producing one barrel of bio-fuel.

Our pocket’s have started to feel the pinch, but I guess it’s kinda late, brakes have already being put to our growth story, it now matters how we spring back and how much can we recover, we can’t keep crying on rising prices for years, it’s happening and it’s here to stay, here’s a interesting comparison, a person investing 1000 Rs in share market in year 1979, stands to earn approx 1.47 lakhs today excluding dividend returns from the market, does anybody have complaints ?, yes for a toothbrush price hike from what I remember around 10 – 12 Rs in 90’s to around 35 – 40 Rs today, I remember my grandma used to take a return rickshaw for 2 Rs when she used to come to drop me to school when I was in 1^st standard (year 85-86), that’s what she used to tell me, and in Mumbai standard minimum auto-fare is Rs 9 today, can we keep complaining forever? should we observe a bandh, organize strikes and do whatever we please to demand reduction in prices.

Political parties will milk our economical mess to their advantage and UPA government may face the music from all over the country now and possibly would get thrown out of the house in the forthcoming elections, however please beware the next government that comes to power would cool off the rising price pressure further messing up economical affairs since we always look at populist micro-economic resolutions, screwing up macro-economic balance sheet of our economy.

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