INDIAN COMPANIES DURING GLOBAL RECESSION: AN OBJECTIVE PROLOGUE

Presented at:The National Conference onBusiness Potential of India in aGlobal Recession Scenario4th April, 2009, Saturday

WHICH WAY DO WE GO ?KEYNES V/s ADAM SMITH

PUMP PRIMING V/s INVISIBLE HAND

AYN RAND

Nathaniel Branden a student of Ayn Rand says in the book “Capitalism: The Unknown Ideal” by Ayn Rand

“As to depression and mass unemployment, they are not caused by the free market, but by government interferences into the economy”.

AYN RAND"Today, people are beginning to understand that the government's account is overdrawn, that a piece of paper is not the equivalent of a gold coin, or an automobile, or a loaf of bread—and that if you attempt to falsify monetary values, you do not achieve abundance, you merely debase the currency and go bankrupt."—Ayn Rand, "Moral Inflation," The Ayn Rand Letter, vol. 3, no. 12, p. 1

"Today, people are beginning to understand that the government's account is overdrawn, that a piece of paper is not the equivalent of a gold coin, or an automobile, or a loaf of bread—and that if you attempt to falsify monetary values, you do not achieve abundance, you merely debase the currency and go bankrupt."—Ayn Rand, "Moral Inflation," The Ayn Rand Letter, vol. 3, no. 12, p. 1

Joseph E. Stiglitz and Y.V. ReddyIDEOLOGY OR In the battle of ideologies,

what is often forgotten is ‘common sense’.

Y.V. Reddy, former Governor of RBI mentioned to Joseph Stiglitz, American economist and Nobel Laureate , when the latter asked the method of managing the economy amidst the crisis. Y.V. Reddy answered, instead of getting enticed by complicated theories he relied on simple ‘common sense’.

COMMON SENSE

THE CRISIS

What one often ignores about the propagators of the philosophy of free economy is, it is based on objectivism.

Objective decision making by individuals and bankers will regulate the economy and money supply.

But what we saw during the crisis was the result of interference of the Federal Reserve by lowering the interest rates persistently.

The Federal Reserve regulates the credit availability in the US economy. Banks were lending to borrowers with low creditworthiness and engaged in unscrupulous and risky investments.

DECOUPLING THEORY HAS FAILED

India in the past years has globalized rapidly and integrated with the world through exports and imports.

Indian corporate have relied on external funding to a great extent, as external funds were cheaper.

Thus as India remains integrated to the world economy it continues to be hit by the crisis.

“

Small and Medium Enterprises drive industrial growth and development. Let us have a look at the Indian SME sector:

 

13 million SME UNITS.

Employ 30 million people.

One million jobs per annum

Contribute 34% of exports

Contribute 40% of Industrial Output

Produce more than 8000 products

Thus plays a major role in industrial growth

SSI growth rate12.32%”

“7th Global SME partnership Summit”

SOURCE: http://www.globalsmeexpo.com/

How does the Indian business community respond to this crisis?

Solution to the current economic crisis lies in INNOVATION

Austrian economist Joseph Schumpeter’s idea of ‘creative disruption’ is an instrument used by entrepreneurs to sustain in the capitalist society.

Capitalism

Ayn Rand refers to the rational mind in her book ‘Capitalism: The Unknown Ideal’, is also about the innovators. She says, “It is from the work and the inviolate integrity of such minds- from the intransigent innovators- that all of mankind’s knowledge and achievements have come. It is to such minds that mankind owes its survival.”

This is the mind that will help us make use of the opportunity of the challenge posed to us by the crisis.

Path for the Indian companies

BREAKTHROUGH MANAGEMENT

Prof. Shoji Shiba

DISCOVERING BLUE OCEAN

W. Chan. Kim and Renee Maurborgne

How could the government help?

REMOVE THE BOTTLENECKS

TRIPLE HELIX MODEL

CONCLUSION:

Decoupling theory has failed and the developing world is no longer immune to the economic upheavals of the developed world.

But the developing world should set itself on the path of innovation to make use of the time which the developed world uses to battle with the crisis.

The time that the developed world engages itself in fighting the crisis, India can bring about a silent revolution. It needs to invest its resources to gear up for and match the capacities of the developed nations.

We need concerted and combined efforts of the business, university and government to apply innovation and make it marketable.

The solution lies, especially for developing nations in the Joseph Schumpeterian idea of “creative disruption”.

Breakthrough management and disruptive innovation can transform the challenge into opportunity and make Indian economy competitive in due course of time.

BOOMING AHEAD WITH OPTIMISM"But we do have a plan. We're working on it. And, I do think that we will get it stabilized, and we'll see the recession coming to an end probably this year.“

-Ben Bernanke Federal Reserve Chairman Ben Bernanke

THANK YOU