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The resilience left understated

Dec 27, 2004

Just 5 days remain before the calendar year 2004 comes to an end. While the stock market will be welcoming the year 2005 with all smiles, we take a look back at three major issues of 2004 and how the resilience of the Indian economy has gone understated.

  1. The first and foremost is the fact that the Indian economy has witnessed a change in leadership. While investors may ignore the fact that it is 'usual' for India that every five years (assuming that way) there is a change at the top, the transition has been smooth (for now atleast). Though there was a knee-jerk reaction from the stock market on the day the election results were announced (which is common anyways), it is often heard on the street these days that the new government has taken the reform process forward. In all this, investors have to an extent failed to give due credit to the fact that India, as a country, is democratic and despite the change in leadership, which is significant, 'we' are moving forward.

  2. Secondly, the stock market crash in itself was an event. As Mahesh Vyas of CMIE puts it "the institutional framework today in India is so good that in spite of such a severe stock market crash, there was no payment crisis". While there are still 'ifs and buts', the fact that the stock market and the financial system as a whole were able to manage this jerk was commendable indeed. Once again, probably, due credit was not given by investors in this context.

  3. For a developing country like India that is growing at an average of 6% per annum, crude prices are of significance. As per an International Energy Agency report, "India, for example, uses more than two and half times as much oil as developed countries per unit of GDP". With the country depending on imports to the tune of 70% of its domestic crude requirements, rise in oil prices impacts domestic prices and government finances. Though the after effects of the sharp rise in crude prices are yet to reflect completely, the fact that the economy was able to ride through this issue is of big significance. The confidence to overcome this factor is higher now as compared to the past.

While there are a number of other developments on the macro side, the issues that we have discussed above are of very high significance and the same could have created tremors amongst investors and policy makers alike before 10 years. While there have been intensive debates on these issues, quite often the way India as a democracy, and a developing economy, has managed to ride through these fundamental issues have been understated. Probably, it is time to acknowledge this fact and look forward to the New Year with the same resilience!

Watch out for our special section 'Reflection 2004' and what to look for in 2005.

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