I wonder if Director Same Mendes would have adopted “Recessionary Road” as the title of his 2008 movie instead of “Revolutionary Road”. The movie is about a young couple living in a Connecticut suburb who struggle to come to terms with their personal problems while trying to raise their two children. Believing themselves to be superior to the surrounding mediocre neighbourhood, they decide to move to France where they will be better able to develop their true artistic sensibilities. As fate had it, their relationship deteriorates into an endless cycle of squabbling and jealousy. Their trip and their dreams of self-fulfillment are thrown into jeopardy.
Had Sam Mendes made the movie “Recessionary Road”, the synopsis would have read something like this. “The movie is about a young couple living in a Connecticut suburb who struggle to come to terms with their financial problems, while trying to maintain their standard of living and their occasional indulgences. Thanks to the easy credit provided by the financial institutions that have been willingly financing and re-financing their loans and at the same time mortgaging and double mortgaging their assets, the couple falls into the vicious trap of debt until realization dawns up on them through empty pockets, zero bank balance and choked up credit cards. A determined America forms the backdrop of the movie which identifies itself as superior to the mediocre surroundings of third world countries and developing nations. The movie explores how the overzealous want of control and ambition have made America more focused on the outside world and the Americans being more reliant on Wall street without sweating out on the Main street. The extravagant consumerist demands of Americans are met by banks and financial institutions without any respect towards the basic tenets of banking and the repayment capacity of it borrowers. The machinations of all this leads to the collapse of the banking system and the Wall street mayhem ensues with the ripples being felt across the globe. As the economy deteriorates into an endless cycle of bank failures leading to a credit squeeze in the market, the couple’s dreams of self-fulfillment are thrown into jeopardy. The great American dream is shattered.
The movie ends but neither will the trials nor the tribulations. The crumbling of the financial structure of one nation has huge ramifications for the rest of the world. I clearly remember when I was an Economics undergraduate in Delhi University, the text book read, “America is the locomotive engine that pulls the world economy”. Imagine that locomotive being out of gas, all the parts crumbling, and the world comes to a standstill. Only this time it’s not standstill but the meltdown in U.S does not portend well for the global economy. The Financial crisis and its domino effect on other frames of the economy have become a global phenomenon now.
For countries that have the wherewithal, a slue of packages are begin announced and bold measures are being taken, both on the monetary as well as the fiscal front. For a few like our country, the financial system is doing fine, but the economic damage because of the demand destruction has slowed growth. For a country like Iceland which has gone bankrupt as a nation, help has come from across the borders but Industries have shut down and the entire population has gone back to what their ancestors did – “Fishing”. I won’t mention the Americas consisting of the Latin American countries. They have been living on the edge since decades and they don’t know any other kind now.
It would be interesting to analyze and investigate where India lies in this pool of blood and how much it has to bite of this American Pie. But before that let me acknowledge that the timing of the occurrence of this global phenomenon couldn’t be worse. We had just started to realize our own Indian dream. The middle class Indian was daring and raring to go. We were right there on the runway to take off as a manufacturing destination and were already riding sky high as a service driven economy, being the preferred outsourcing destination for the rest of the world. Now the entire set of assumptions and facts responsible for India’s advancement has changed and there has been a paradigm shift.
I remember back in 2007, when the sub-prime crisis was unfolding its demons, most of the analysts appearing on the television channels were busy propagating their decoupling theory that the Indian growth was being fed by domestic demand and the problems in U.S would not have any bearing on the Indian economy. However it seems that their worst nightmares have come true. As far as the Indian economy is concerned, we are seeing contraction everywhere. Contraction in demand, contraction in spending, contraction in manufacturing and a slowing services industry. The Index of Industrial Production is at a record low, the quarterly GDP growth data at 5.3% is at a 5 year low. Exports have been hit beyond control resulting in an estimated 1 million jobs. The once booming real estate industry is getting a reality check with all the major companies cash starved and sales plummeting by the day. On an optimistic note we are still the Cinderella with the glass sandals on sans the prince charming. On a pessimistic note, it’s time to hit the barracks.
The question on everybody’s mind is which one of the two is more likely. Time for some reality check. During good times, all of the corporate jewels raised capital and increased capacity to meet the growing demand. We grew ambitious and made many global acquisitions putting us on the world radar. We did the unthinkable, after all who would have thought Jaguar and Land Rover would have ever been acquired by an Indian automobile Company. The same company that acquired these automobile jewels also showed the true meaning of innovation, a car for the masses costing just one lakh rupees. But now after the global massacre, these capacity expansions and acquisitions which were supposed to pay dividends have become the source of headaches for the corporate honchos of the country.
During good times, the good Indian was spending hard on the expectation of incremental future disposable income. Now they are saving hard because the same incremental future disposable income has become uncertain. In effect we are working under opposite forces. But we do have a silver lining; the fabric of the Indian economy is still intact. The problems are derived from the collapse in other countries whereas our financial system, integral to any economy is sound, alive and kicking. We Indians are ready to work harder even with our pay cuts. However we cannot get back to the same growth trajectory on our own. We are victims of the excesses committed by U.S, the problem has come from outside, and a solution has to come from them.
Most certainly we are not going to hit the barracks. A little support in the form of a global recovery and the right dose of economic policies and planning, we should be back on tracks by late this year or early next year. Till then at best we can be visitors waiting for our patient undergoing surgical procedures by the economist doctors. The fundamental that drives are economy is still intact, it just needs to be supported by global demand of our goods and services, and the return of consumer and investor confidence which is somewhat shaken at the moment.
All that I can takeaway form this episode is that our time has come. Once the global economy starts showing signs of improvement we would recover even faster and outperform our global peers. I agree that we are in the Mississippi mud, but we will emerge out of that. After all we are an emerging economy, aren’t we?