The world today is struggling with the financial crisis and recession. As countries struggle to come back to normal, they will try to avoid job losses and stimulate their economy in whatever way they can. One of those ways is to protect jobs for their citizens and to encourage consumption of resources produced within the country. At times like this the free market system is suddenly an inconvenience.
These are clear signs that we are entering an era of protectionism brought on by the worldwide recession or slow down. Protectionism is likely to become more common as country after country feels the heat. Getting visas for professionals to do work in other countries will become increasingly difficult. How is the Indian IT services industry going to cope with the coming challenges? The response of the industry will have to be creative, and transcend the obstacles that we will face.
A key reason for success in future will continue to be the level of connectivity we have with our markets. After all, connectivity was the key to the growth and success of Indian IT companies. But is India prepared for a future where the quality and capacity of connectivity, both domestic and international, will be a key driver of the industry? The answer is an obvious yes as the Vision 2020 for India already includes world class connectivity, both within the country as well as to international markets. This will be a key determinant in how strategically positioned we are to continue to grow our share of the IT services market worldwide.
India would be able to weather any recession in the United States, because rising trade and investment within the region makes it less dependent on the U.S. economy than in the past. While a recession in the United States would drag on India’s growth by eroding demand for exports but a rapidly growing middle class in India is craving for automobiles, electronics and housing much of which will be supplied from India itself. Demand for oil, iron ore and other commodities to build roads, sewage systems, and office buildings in the booming economy of India will help it sustain through any US slowdown. Well, the US economy is not that important anymore. A drop in U.S. growth rate might lower down India’s growth rate due to recession but since India is growing so fast, it isn’t likely to be affected that much as India’s economy will still continue to expand but just slightly slower than the previous year, i.e., India's growth will likely slow to 7 percent from the current rate of about 9 percent but still the growth will be sustainable at 7 percent.
If the policy initiatives that were taken in 1991 economic liberalization, privatization, globalization and modernization are continued to be taken, India’s economy will be a dynamic economy and it will launch our economy on a healthy growth curve. Now India is on a visible path to progress towards the status of a developed nation. Whether the nation crawls, walks or runs, it does not matter as long as the policies are continued to be taken up at the right time as it will ensure a speedy progress towards the goal.
Thus the experienced capitalists who have the skill to evaluate technological risks and have the self-confidence to invest in untried technology. During recession, if India continues to go too slow, it will miss out on worthwhile opportunities. It is technology, not money, that brings prosperity these days and India has many talented technologists who are capable of creating a continuous stream of innovative products.
Consider the case of an industry that normally has sales of Rs 1 crore, an interest burden of Rs 20 lakh, and leaving a net profit of Rs 5 lakh. Suppose prices double due to recession, sales go up to Rs 2 crore, the interest remains at Rs 20 lakh and the net profit shoots up to Rs 30 lakh - six times. Thus though the banks might suffer due to recession and increase in the interest rates, the equity share holders will make lots of income. If the financial institutions continue to have self-confidence and keep investing, the Indian firms with valuable indigenous technology will continue to grow even during recession.
Just consider the bold business decision made by Ratan Tata, in taking the plunge to launch the much awaited ‘Nano’ into the Indian market! If an automobile company, which was most hit by the recession can do it, so can other companies. Moreover, Tata group is taking over the U.K.’s Jaguar and Land Rover. But the U.S is resisting a take over of general motors. So the lesson is obvious. U.S’s economy has failed. The inflation demonstrates that the rich tend to get richer not only at the expense of the poor but at the expense of their own economic system. From the past recessions it can be observed that companies emerged stronger after a recession were the ones that had less cash in hand but decided to spend and invest heavily. A recession like this adds urgency to the situation and as a result companies start rethinking their strategies and sort out issues. This is where there will be a rise of the markets which will see a double digit growth.
The global economic slowdown presents an opportunity for the Indian industry to work on products produced by the small scale industries, one of the key strengths that we have.
The world economy is in grave consequences and this situation has had adverse implication on our economy. But the Government has taken wide ranging measures to mitigate the impact and to ensure that actualization of our vision 2020 remains on course and the Government remains focused on erecting the building blocks for the attainment of the economic vision 2020!
