We import inflation made in USA

We import inflation made in USA

Will the current sub-prime crisis in the US trigger another Great Depression, 80 years after the first one, with repercussions across the world?

Prasad Ramasubramanian

Monday, April 21, 2008

People differ on the consequences of the current sub-prime crisis in the US. Dr Karin Kneissl, a freelance journalist and energy analyst, believes it is likely to affect globally.

“My estimate is that we are just about to enter a major economic crisis on a global level. In order to respond to its various consequences, more Keynes and less Friedman will be useful for economic advisors,” says Vienna-based Dr Kneissl. She feels that the world should spruce itself up to face yet another economic slowdown.

“Rigid legislation on financial transaction has been demanded by many responsible voices in the past, but not heeded. So we should prepare ourselves for major changes, whether they can be tackled before or during the expected turbulences remains to be seen.”

Even as discussions are abound on the possible global impact of a presumed US recession, Dr Kneissl cautions Asia is still partially reeling under 1997 crisis. “Japan is still dealing with its underlying problems, such as the structure of its banks, credit conditions etc. The Asian crisis was partly overcome by the Internet bubble, the rise of China and India and the increase in oil prices, which created new revenues for the oil and gas producing countries.”

She adds: “Remember Russia was nearly bankrupt in the summer of 1998; its economic recovery is due to the rise in commodity revenues. This wealth is of temporary nature.”

Made in US

Dr Kneissl points out the highly inflated world currency reserve, a result of an irresponsible monetary policy of the US. “We all import inflation made in the USA, in particular those countries with strong economic ties to the US and commodity producing countries since their goods of export are all valued in the US-dollar,” states Dr Kneissl.

She opines countries such as Russia and Kuwait have already gone ahead and is reshuffling their currency baskets: a decision, which requires long-term action. “I am not so sure whether there is still time left to act without provoking further panic and thereby driving the US-dollar down. Sooner or later, the US will depreciate its currency.”

Apparently, Dr Kneissl will have to face a lot of optimists who vouch for India’s prominence in world markets despite rising inflation and weakening of the bourses. Analysts feel that US recession would impact Indian markets albeit on a short term.

Yet there are voices that rule out a possible US recession may not greatly affect its economic partners. Anish Zaveri, associate director of KPMG Advisory, is one among them. He feels that the Indian IT and BPO sector would venture into the inorganic route in order to maintain their growth and profitability.

His take is that those companies wanting a growth in their topline would look for overseas acquisitions while organizations that look at a bottomline profitability would buyout domestic companies.

Debatable

Vijay Subrahmanyam, associate director (IT Advisory) at KPMG, is skeptical of the recession. “If you look at the thought processes that is coming from various parts of the world, yes there seems to be an indication of slowdown for sure. Whether it’s too early to call it a recession, it’s still a debatable question.”

He is prepared to give it a couple of months more before hitting the panic button. Unlike many other analysts, Subrahmanyam feels that it is difficult to predict how far the (possible) recession might impact the Indian economy, because there seems to be a plus and a negative reading to it.

However, he is quite clear that the Indian outsourcing companies would continue to leverage on the cost arbitrage in recession. Analysts aver that companies with balanced portfolios would survive this downturn.

Subrahmanyam looks beyond the present situation: “I feel there would be more focus away from the US markets in the coming years not only because of recession but also because the rate at which we are growing. We need to head towards newer markets.”

Soumitra Agarwal, marketing director, India, NetApp, offers both sides of the coin. “There definitely is a slowdown in the IT spending. It has definitely impacted some of the large global customers. As far as our India business is concerned, there is no impact.” He however feels that Indian organizations would not feel the pinch with regards to their IT spends.

©CyberMedia News

Would you like to Comment on this Article?

Name
Email
Comment Here
Code Verification

Read Comments

Prof. Chandrashekar said on 5/16/2008 1:16:12 PM:
Now Indian Industry & services sector should be more aggressive in european markets, rather than relying much on US markets

to Prof. Chandrashekar

Sankalpa Bhattacharjee said on 4/22/2008 11:12:24 AM:
The US happens to be Indias most important trading partenr. An anticipated slowdown in the US would definitely reduce the volume of outsourcing activity being offshored to India, nothwithstanding the obvious cost advantages that India has been enjoying over the years. Further, since India not been much successful in penetrating other geographies, a slowdon in the US would mean testing times for the Indian IT-ITeS industry.

to Sankalpa Bhattacharjee