International Seminar on Economic Slumps: organised by Fatima Mata National College, Kollam, KERALA

Speech of Prof K V Thomas, Hon’ble MOS (I/c) for CA, F&PD during the International Seminar on Economic Slumps : Challenges to Indian Economy – organized by Fatima Mata National College, Kollam.


Father Principal, Distinguished guests, experts from various organizations, dear students, ladies and gentlemen…

I am indeed happy to be with you all at the international seminar on the challenges of economic slumps to Indian economy. I am pleasantly taken back in time to my days a teacher, facing a gathering of young and vibrant minds, eager to learn, question, find out and imbibe from their teacher: as also, sometime, to ‘teach’ a couple of lessons to those lecturing to them.

I should appreciate the initiative taken by the Fatima Mata National College for organizing such a brainstorming session on a crucial topic as part of their diamond jubilee celebration. I am sure that the deliberations that you are going to have today and tomorrow will touch upon a host of pertinent issues concerning the world economy with particular reference to that of our own country.

Till a few years ago the world had taken for granted the benefits of globalization and global interdependence. Today we are being called upon to cope with the negative dimensions of those very phenomena. Economic, social and political events in different parts of the world have coalesced together and their adverse impact is now being felt across countries and continents.

As you know, the contemporary global economic scenario can not be examined in isolation. The traditional engines of the global economy – countries such as the United States, Europe and Japan, which are also the sources of global economic and financial stability, are today faced with continued economic slowdown. Recessionary trends in these countries are affecting confidence in world financial and capital markets.

If you recall, the 2008 financial crisis was due to the asset bubble in the US housing market and complex interplay of valuation and liquidity problems in the US banking system. Economies worldwide slowed during this period, as credit tightened and international trade declined. Governments and central banks responded with unprecedented fiscal stimulus, monetary policy expansion and institutional bailouts.

Even though the US economy is still recovering from the that crisis and its job creation has not yet improved to the desired level, six months ago, everyone thought that the 2008 financial crisis had been brought under control. In the last three months the situation has changed dramatically, primarily because of the Eurozone debt crisis. The recent developments in the United States, the Euro zone and even China held out the depressing prospects that the global economy may be heading towards an even more serious economic crisis than that of 2008.

Europe is under severe debt. What began as a crisis in Greece has led to a contagious effect as the other major European countries like Spain, Italy and even France have severely strained the European banking system. The Eurozone debt crisis is believed to be more serious because the governments across the world are exhausted with the armory of fiscal and monetary tools as most of these tools were already used to combat the previous crisis and are now left with nothing.

What are the implications for India and What are the ways in which the European debt crisis could affect Indian economy?

It is an agreed fact that we can have satisfaction because our economy has demonstrated lot of strength and resilience after 2008 crisis and our economic growth as well as stock markets recovered very fast.
This much is also clear that the Euro zone crisis will not have any direct impact on our banks because our banks are not exposed to European debt. However, our trade flows could affect if the European banks stop giving trade credit. Many economists think that India is mostly a domestic demand driven economy, so we cannot hit by a global downturn. But this is not true. Our foreign trade in goods and services is already over 50 percent of the GDP. Our stock markets and currency markets are very sensitive to global cues. We are not as insulated from global markets as we think.
In an increasingly interdependent world, we must have contingency planning to guard ourselves from the effects of such global crisis as these developments are bound to have a negative impact on developing countries which also have to bear the additional burden of inflationary pressures.

Inflation as measured by Wholesale Price Index (WPI) has remained around 9 per cent during the first half of current financial year. The inflationary pressure in recent times have emanated from multiple sources, the most important being the global rise in commodity prices and liquidity enhancing policies adopted by central banks in industrialized nations. Food inflation has significantly dropped from a peak of 20 per cent in February 2010 to about 8 per cent June-July 2011. However, the sources of inflation have now switched to non-food; much of it was due to imported global commodity inflation. As per the first advance estimates released by Ministry of Agriculture on 14.09.2011, production of kharif food grains during 2011 -12 is estimated at 123.88 million tonnes compared to about 120 million tones in 2010-11. In the kharif season 2011-12, the country is likely to achieve production of 87.10 million tones of rice, 20.89 million tones oilseeds and 36.10 million bales (170kg. each) of cotton. This augurs will for supply side response to arrest inflation in food items.

I also feel that the current crisis gives us an opportunity to strengthen the sectoral initiatives and specific schemes to reduce the percentage of poverty.
We need to accelerate reforms in agriculture to increase production, encourage industrial growth and promote small and medium enterprises to ensure job creation that will pull people out of poverty. Many of these policies are not specifically targeted at the poor, but I believe that they will create conditions in which poverty will come down.
We also have specific schemes to alleviate poverty. While NREGA is one, Food security is another. Both the Centre and the state governments operate jointly the Targeted Public Distribution System to ensure food security to the poor and the vulnerable sections of the society. I understand there is much to be done to strengthen the system, but progressive reforms are being taken to reduce leakage of foodgrains, bogus ration cards and make PDS more transparent.

I am very much hopeful that the state governments including that of Kerala will take all possible initiatives to reform PDS because the UPA government is committed to come up with the National Food Security Law.

The consultation process on the draft Food Bill has already been completed. We are incorporating some changes in the draft bill and take it for the Cabinet approval before November 20. Our aim is to introduce the draft bill in the forthcoming winter session of Parliament.

Once the bill is passed in Parliament, ration card holders will have legal right over subsidized foodgrains. If any fair price shops fail to provide foodgrains, the card holders can pull that shop owner to the court.

With these remarks, I wish organizers success of the seminar. The suggestions of the experts would help us in our endeavour to fight poverty in the midst of weakening global economic environment.

Thank You.

JAI HIND