global economic out look no v 2008

8/14/2019 Global Economic Out Look No v 2008

1/20

Krisani Global Economic Outlook:

A Kaleidoscope for the Next Six MonthsNovember 2008.

S. AnanthHead, Research, Krisani Knowledge Resources, Hyderabad.

14th November 2008.

www.krisaniknowledge.com


2/20

Krisani Knowledge Resources

8-2-293/82/A/321-H, Plot No.321-H, Road No 25A

Adjacent Lane to Obul Reddy Public School

Jubilee Hills, Hyderabad - 500 033.

Andhra Pradesh. INDIA.

Phone: + 91-40-23543131.

www.krisaniknowledge.com


3/20

Krisani Global Economic Outlook:

A Kaleidoscope for the Next Six Months

November 2008

"The truth is nobody knows the full impact on trade flows that will come from

companies that are global businesses that are

under stress and consumer spending which has dropped precipitately"

Ron Widdows, the chief executive of Singapore's Neptune Orient Lines1

"We produce nothing but superfluous things. That is very rewarding becausesuperfluous things cannot be replaced by even

more superfluous things."


4/20

A Kaleidoscope for the Next Six Mon ths

The truth is nobody knows the full impact on trade flows that will come from companies that are global businesses that areunder stress and consumer spending which has dropped precipitately

Ron Widdows, the chief executive of Singapores Neptune Orient Lines1

We produce nothing but superfluous things. That is very rewarding because superfluous things cannot be replaced by even

more superfluous things.

The above mentioned words could easily be mistaken for rhetoric that may be the forte of a Marxist politician. But unfortunately,they are the words of the Wendelin Wiederking, the CEO of Porche in 2003. It encapsulates the state of the worlds economythat gave a pride of place to the financial sector for the past four years. Whether the fancy cars or the nearly US$2 billionresidence that Mukesh Ambani wanted to build, it was clear that capital found it more profitable to speculate rather than investin the creation of productive assets. A minor statistic may validate our argument about the increased centrality of the financialsector to the US economy2. This Financialisation was thought to be a panacea that would cure the ills by various wise men ofthe bygone era most notable cheerleader of course was Alan Greenspan (once thought to be the greatest central bankeragain an ironic symbol of the eulogizing that is the norm of raging bull- run).

The last issue of Global Economic Outlook in May 2008 had clearly indicated that the present state of the economy was aforegone conclusion. However, it did not anticipate the speed with which events struck the world. This issue would like to

provide an overview (or more like a status report) of events since then. In fact the present scenario seems to be Dj vu (allover again) which any policy maker would deny and would instead try to claim that these are events that strike once in ahundred years. Unfortunately, while no two crises are identical, the fact that policy makers have not learned anything from thepast crises of the past 33 years is in itself indicative of the state of mind of our policy makers. Winston Churchil ls words theability to foretell what is going to happen tomorrow, next week, next month, and the next year. And to have the abilityafterwards to explain why it did not happen aptly reflects the state of present day policy makers, economist and analysts.Optimism is never in short supply. An IMF research paper has identified 124 systemic banking crises since 1970. In total theresearchers have identified 124 banking cirises, 208 currency crises and 63 sovereign debt crises over the period 1970-20073.Socrates once observed that I know that I know nothing probably hoping that our policy makers would follow suit and keeplearning. Apparently, mediocrity is the new consensus among our entire breed of policy making class. Probably the singlebiggest problem we face is that everyday our policy makers come to office with a clean slate. In the retrospect, it seems thatto have expected anything different may have been overly ambitious. Considering the fact that the most powerful country in theworld is led by a person (George Bush) who probably has the lowest IQ (who makes Adam Smith turn in his grave) we probably

were indeed ambitious.

This paper attempts to trace the events since May 2008. It sets itself a gargantuan task as the paper title A Kaleidoscope forthe next six months suggests and would like to build various scenarios that are likely to occur over the next one to three years.The reason why this task is thought to be very challenging is for the simple reason that trying to visualize what the economywould look like after one year is difficult, when forecasting for the next one month itself seems to be unreliable at best.Nevertheless, this ambitious attempt may be long over due. I am fully aware of the fact that the results of this could bediametrically opposite. The results are likely to be (1) Either they would be considered brilliant or (2) would be considered tobe extremely stupid to say the least. I will try to draw on the past and the present to try and gauge what the future may looklike. In fact, Thomas Nagels articulation of the problem may hold good in the present scenario. He says, the complex problemthat we face consists of difficulty that would in non-boom circumstances have gone insolvent much earlier. This is reflected inthe low bankruptcies of the past few years. Bain & Company, a consultancy has forecast that 4.8-5.9% of American high-yieldbond issuers would default this year. This is an increase from 0.9% last year. The number of bankruptcies (companies with

assets of over US$100 million) will similarly rise to 50-75 from 13 in 20076. The chickens are now coming home to the roost.It is the first time since late 2002, the average spread between high yield corporate bonds and Treasuries now exceeds 1000basis points (or 10%). Such a spread would normally earn an issuer the dubious distinction of falling into the distressedcategory. This implies a probability of nearly 25% default within the following 12 months. The face value of distressed AmericanCorporate high-yield debt is now US$328 billion up from US$59 billion in January 2008. It is pertinent to note that once a bondbecome distressed it has nearly 20 times more chance of defaulting in the following 12 months than a non-distressed high-yield bond. Some believe that based on past trends, current pricing reflects the probability of a default rate of 12.4% over thenext 12 months. This contrasts with a default rate of 3.4% in the past 12 months (preceding September 2008). Interestingly,the past two recessions witnessed actual defaults peak at 11.59% in January 2002 and 13% in June 1991. Thus the defaultrates over the next 12 months could vary from 8-11 percent, depending on the severity of therecession. The following chartprovides a graphic overview of the corporate defaults in USA. The situation is not expected to be very different in differentparts of the world.

Krisani Global Economic Outlook 2008.

www.krisaniknowledge.com Pg. 1 of 17


5/20



On the contrary, bankruptcies and the attendant write offs the world over may just be the next shoe to drop, but the worldeconomy has so many more shoes to drop, it becomes hard to believe that the World Economy is a simple creature rather thana multi-headed hydra that never ceases to surprise. One of the reasons why we continue to remain pessimistic is because of

the increase leverage and the time it takes to deleverage in an era of debt deflation like the one that we are witnessing overthe past few months.

The following chart clearly indicates the nature of the problem due to the high proportion of debt and its impact on business.The chart provides a snapshot of the situation in 2007. Since the credit market froze (especially after Bear Stearns and Lehmanfiasco), the consequences have only grown exponentially to the downside.

Share of Corporate debt accounted for by Businesses with Interest payments Greater than Profits

Source: Bank of England, Financial Stability Report, October 2008, p.11.

The statistics in the above chart may not have factored the collapse in demand in the aftermath of the collapse of Lehman. Thiswould imply that while profits collapsed due to the lack of demand, the cost of debt has risen due to freezing up of the creditmarkets and growing risk aversion. The fact that banks stopped lending and are still quite hesitant is a matter for concern. Thefollowing charts provide a graphical illustration of banks willingness to lend to each other and the higher cost of credit asreflected by LIBOR-OIS spreads. This has vastly increased the cost of capital (to the fortunate who can still access it) whiledenying it to most of the businesses. The cost of capital for even the basic (or most acceptable segments) has doubled7. LIBOR-OIS is considered a good graphical measure that indicates cash scarcity. It is the difference between the three months LondonInterbank Rate for dollars and the overnight indexed swap rate. As nearly US$360 trillion worth of financial products worldwideare linked to LIBOR, its movement becomes critical to the cost of capital for businesses.


6/20

The following chart clearly shows that it froze the markets and banks refused to lend to each other. It clearly indicates that atthe height of the boom, banks were not only comfortable (indicated by a low reading that varied from 0.2 to 0.5). This shot up

mostly due to two reasons (a) banks were not sure as to the solvency of the counter party, and (b) they were losing so muchthat they preferred to hoard cash in order to write off substantial losses. This still seems to be the major problem facing theworld economy. This has led to difficulties in securing trade credit, which in turn affects the world trade. Around 90 percent ofthe US$14 trillion in world merchandise trade is funded by trade finance8.

Source: Bloomberg

Banking Sector Crisis & its Ram ificationsThe present system has decimated the banking system of the western countries. One would be tempted to believe that it has

permanently altered the nature of banking system. It has wiped out the investment banking companies as they existed. Theyhave been forced to shut shop or simply convert themselves into banks. Hopefully, unbridled speculation will be kept on a shortleash. The most glaring aspect of the crisis has been the total ineptitude with which policy makers have handled the crisis.

The regulatory system of the 20th Century was built on the Weberian model, which for a long time was seen as a counter poiseto the Marxist views. Karl Marx was strongly against speculation and believed that it should be suppressed and should besupplanted a system that would enable the state to appropriate the fruits of economic activity. Max Weber on the hand believedthat it would be impossible to suppress speculation and energies would be better spent if they could regulate speculation insuch a manner that would avoid a situation wherein a speculator would endanger the whole system. Hence, he believed thatonly those who have the means to speculate should be allowed to speculate, while the institutions of the state would strictlyenforce compliance. Unfortunately, George Bush and his brand of crony capitalism have created a system wherein it becamefashionable for the regulators to sleep at the wheel their stress on self-regulation. The paper will not repeat the problems

in the global banking system as it has received widespread coverage in the media over the past twomonths. Suffice, to say thatthe cost of the crisis has been exponential to say the least. Bank of England has pointed out that the mark-to-market losses ofnearly US$1.8 trillion. The total bailout packages (including guarantee to debt, etc) is expected to reach US$7 trillion9. The US




7/20

Federal Reserve has already lent nearly US$2 trillion to various companies directly10. Till the bankruptcy of Lehman Brothers,the US Federal Reserve lent only against US Treasury bonds, now this has been expanded to include any collateral.

The single biggest unknown for the world economy is the derivative market. The case of AIG underscores the instability that itmay cause. AIG had bet on more than US$446 trillion worth of derivatives of various genres. As the values started falling, thecompany was forced to put up more collateral and when it could not, its ratings were cut and it had to be bailed out by the USGovernment. Its problems do not end there. It was thought that it need about US$40 billion of emergency funding. It has nowtranspired that this has now reached US$150 billion. The problem with the banking sector is that even the most knowledgeable

management members do not know the magnitude of problem. A recent DTCC report showed that a total of US$33.6 trillion ofderivatives transactions on governments, companies and asset backed securities worldwide (based on gross numbers). However,industry estimates claim that the report may not have accounted for nearly 40 percent of the trades outstanding in themarket11.

Sliding Commodity PricesTo claim that commodity prices are sliding would probably be an understatement. Sliding aluminium prices have led to about1.6 million metric tons of global smelting capacity being idled, and another 700,000 tons may follow12. UBS-Bloomberg 26Commodity Index (chart below) clearly shows the problem that the commodity market is grappling with. The index was about505 in June 2003 and shot up to 1723 in July 2008. It is pertinent to note that the intensity of the fall may have (at least to anextent) been buffered by commodities such as Gold and Silver which have not collapsed to the extent that others like oil orcopper may have fallen.

This collapse of commodity prices could have devastating impact on commodity exporters, especially countries like Russia. Thelast time commodity prices collapsed (in 1998), Russia defaulted on about US$40 billion of its external debt and the currencywas devalued by about 40 percent, leading to a collapse in international markets. This time could be no different if the

commodity prices continue to collapse.

Source: Bloomberg (as on 4 Novem ber 2008)

Copper is a commodity that better reflects the industrial environment due to its widespread applicability. Inventories of Copperat the London Metal Exchange have increased from about 109625 tonnes in May 2008 to 237,925 tonnes (as on 4 November2008) and to 270,100 tonnes on 12 November 2008 the highest since at least March 2004.

Crashing Baltic Exchange Dry Index

A more frightening problem is the collapse in the Baltic Exchange Dry Index commonly referred to as the Baltic Freight Index (orBFI), an excellent indicator of the state of world trade. The index measures the price of voyages and the cost of charteringvessels. It is pertinent to note that nearly 90 percent of the worlds trade is carried out over sea. The Baltic Exchange has ahistory that dates back nearly 250 years. The exchange introduced freight futures in 1985. The index (Chart Below) hasdropped precipitously by more than 90 percent since it peaked on 11771 on 21 May 2008 and now (12 November 2008) stands

at 824.




8/20

Source: Bloomberg

It has been pointed out that the fall is causing huge losses to not only hedge funds which had entered the Freight Futures

markets in the past three years but also to large companies. The freight rates for the largest transporters (commonly referredto as Capesize) quoted at more than US$233,988 on June 5, 2008 but by the early November but by early November hadcollapsed to US$52,616 a day. Citigroup has estimated that Suezmax vessels (the biggest tankers that can navigate EgyptsSuez Canal while full) are losing more than US$10,000 a day. Owners of aframaxes (that can carry 600,000 barrels of crude)are stated to be losing about US$13,000 a day13. These capsized vehicles carry most of the bulk cargo including coal and ironore. It has been pointed out that the daily cost of running these ships cost nearly US$15,000 a day (including depreciation) butthe present rates now are earn US$5,982 a day. Interestingly the Bloomberg Tanker Index does not seem to indicate thedistress levels (chart given below). Whether the fall in the BFI is largely due to the deleveraging by hedge funds or due to agenuine collapse in freight rates need to be seen. Greater clarity should emerge after Friday (7 th November 2008) when thefutures in Freight expire.

Bloomberg Dirty Tanker Index

Source: Bloomberg

The collapse of the credit markets is creating problems far beyond the financial sector (as only to be expected under themodern era where finance occupied the pride of place). It has been pointed out that the shipping industry needs about US$300billion over the next three to four years to fund the construction of vessels that are already under order14. Inability to fund thesesemi-complete work has the potential to create more problems for the banks as insolvency of shipping companies not only has

the potential to create great disruption over the next seven years but also create additional losses for the banking sector ashalf-complete ships compound losses for the builders, shipping companies (as well as creditors). Apart from this, the lack of

ships (most of which on order would have entered service after 2010) has the potential to create disruption of world trade




9/20

beyond 2010. It is pertinent to note that in 2010, the UN Shipping agencys (International Maritime Organisation) ban on single-hull tankers comes into force as they are at greatest risk of spilling oil in the event of an accident.

PART II

Where is the World Economy heading:

It is now commonly accepted wisdom (though belated) that this is the worst crisis since 1929 though not formally a depression.

The expectation is that the recession would be global in nature and would probably be as severe as the recessions of the1980s.

Europe is already in recession. The EU economics commissioner has stated that The economic horizon has significantlydarkened. He further added that The situation in the markets remains precarious and the crisis is not yet over. It is very hardto estimate how deep the financial crisis will be, how long it will last, and what negative effects it will ultimately have on the realeconomy15. The growth rate in Europe next year is expected to be just 0.1 percent and 0.9 percent in 2010. Such an officialforecast would most likely result in a negative surprise rather than the other way round. The IMF has cut is overall 2009 growthforecast to 2.2 percent from 3 percent an estimate that it issued last month.16.

Since this is more of a global recession, it would be inconceivable that one country may be insulated. At best there is only acase for relativity. This is because exports (most emerging markets depend on it) account for nearly one-fifth of world growthand are going to be severely affected by the problems in the developed markets. The impact of this would be more pronounced

in the case of China, Brazil and Russia. It would also drastically impact commodity producers such as South Africa (among theEmerging markets) and also negatively impact countries such as Canada, Australia and New Zealand.

The problems plaguing the banking system continue unabated. Banks are unwilling to lend even among themselves as theyhave very little clue about how deep the problems could be and more importantly they are also suspicious about the solvencyof their counterparty. In the Euro-area, banks deposited a record 297.4 billion Euros with ECB rather than lend it elsewhere (on6 November 2008)17. Such an attitude invariably signals that trust has eroded and despite innumerable government diktats, itwill take a long-time for trust to return. The longer it takes for trust to return, the longer the recession will last. Bankers andpolicy makers in turn seem to be making the same mistake over and over again. By cutting real interest rates they hope toinduce people to spend rather than save money (that is declining in value). Policy makers prefer investors to make higheryielding risky long-term bets. Unfortunately, in the present environment it is more likely that people would cut down onconsumption, repay debt or simply hoard cash. Anecdotal evidence seems to suggest that this is happening. October retailstatistics in USA shows a collapse in spending across different segments, including the luxury segment18.

Looking through the Kaleidoscope for the elusive recovery:An important question that has frequently been asked is which country, or which group of countries can act as an effectivecounter balance to the present problems.

There are two broad zones from which we could witness a recovery, as and when it does start. The first is the USA itself andsecond are two important economies of Asia Japan and China. However, both seem unlikely in the near term. The IMFestimated that China accounted for nearly 27 percent of the global economic growth in 2007. But its rapid slowdown has causedconcern that it may not be able to weather the storm. It has one of the largest reserves in the world nearly US$1.9 trillion atthe end of August 200819. On 9 November 2008 China announced a stimulus package worth US$586 billion that would be spreadover two years. This is nearly a fifth of Chinas GDP. This spending is expected to boost Chinas economic growth by two percentin 2009. Before the present stimulus package was announced, it was widely believed that Chinas growth would be the slowestin nearly two decades20. The severity of the crisis is so intense in China that more than half of the toy makers have been forced

to close down.

The other geography, where a recovery is theoretically possible is the USA. This may sound oxymoronic but the next phase ofgrowth may be geography specific rather than more broad-based as in the past five years. This geography specific growthwould in my analysis be devastating to various other countries, especially the emerging economies. Why is this so? Once therecovery starts in USA, it is likely that capital will flow out of emerging economies and flow back to USA. A recovery in the USA(and other parts of the world) would be possible only if various governments undertake massive stimulus programmes, themore co-ordinated the better. However, any recovery would be possible after this phase of deleveraging concludes. How longthat takes would border more on the realm of speculation rather than any scientific analysis. It would be a mistake to think thatEurope could assist in a recovery. Europe is equally badly over-leveraged and in many cases worse than the USA.The U.K.sgross external liabilities are nearly five times as large as the nations gross domestic product according to Citibank21. The chartbelow indicates the magnitude of the problems in European banking sector, a sector that is of vital importance:




10/20

Source: ww w.nytimes.comA recovery in the USA would need large scale investments by the US government in public spending. The American Society ofCivil Engineers pointed out that US would about US$1.6 trillion over a five-year period. The US Department of Transportationestimated that the investment required eliminating the project backlog for bridges, and highway improvement would beapproximately US$131.7 billion per year for the next twenty years. This excludes the cost of maintenance22. Such large-scale

spending is required as the USA has not seen large investments in infrastructure since the 1980s. In normal circumstances,such high levels of opportunity, especially in a country like USA (where the institutional protection for capital is highest in theform of laws, etc) should be a ground for elation. However, in times of scarcity of capital and when risk aversion has becomecentral in investment strategy, it would mean a further drain of capital from emerging markets (and probably even fromEurope) back into USA.

The Democrats have announced that they would like to pass a US$150 billion of stimulus through the retiring congress. Apartfrom this they would like to provide a special grant to the Detroit centered auto industry. The US auto industry is deemed to betoo large to fail. It has been pointed out that if the Big three auto companies were to fail then it would deprive about 3 millionpeople of employment and would wipe out about US$150 billion of discretionary incomes in 2009. But all these will not bewithout severe consequences (though they will be felt only in the long-term). While this may double the US budget deficit tonearly US$1 trillion next year23, there may be no other alternative for the US and world economy24.

There is one important aspect that governments the world over need to keep in mind. They should not be carried away with the

supposedly huge reserves that some of the governments have at their disposal. China, Japan, Russia and India fall into thiscategory. Asian nations have seven of the 10 biggest pools of foreign-exchange reserves, according to data compiled byBloomberg. Chinas $1.9 trillion holdings account for 28 percent of the worldwide total. Japan has the second-highest tally at$969 billion. India, Taiwan, South Korea, Singapore, Hong Kong and Malaysia each have more than $100 billion. However, mostof these reserves are invested in US Treasuries and debt instruments like those issued by Fannie and Freddie which have animplicit US government guarantee. Should the push come to the shove and the government(s) need(s) these reserves, theymay turn out into an illusion wherein the governments may be forced to dump these in the market, thereby driving down theirmarket value and with it the money realizable at a time when governments need hard cash the most.

The Case of India:

Winston Churchill once said that the most exhilarating feeling in life is to be shot at and missed. An inversion of this quote and

looking at it from the shooters point of view would probably sum up the efforts of our policy makers. They have continue toshoot (since August 2007, when they were living in denial) and invariably miss. Till about three months ago, anybody whothought India was heading for a slowdown was considered to be senile. Now, anybody who thinks India COULD enter arecession is considered to be in a poor state of mind, if not mad. Ironically, these are signs that we are far from the bottom. Itis pertinent to note that markets have never bottomed out when a large section of the people think that stocks (or other assets)are available at bargain prices (like the present scenario).

We will first enumerate the problems that the Indian economy faces then try to elucidate why we think things are far worsethan we are made to believe. A couple of factors have been overlooked (or have not been given much importance). Onlybelatedly are we waking up to the view that in an era of global capital flows (and a system where credit lubricates thateconomic engine), it is impossible to conceive of growth during a period when liquidity will continue to be drained from theworld economy. The India Story (boom) since 2002 has one that has largely been possible due to credit financed constructionand consumption25 that has largely been urban centric. This is obvious because the past five years have seen only nominal

growth in the agricultural sector. This consumption story seems to have reached its logical end with the increase in interestrates and the RBIs tightening of the monetary policy in order to fight inflation.




11/20

It would be a mistake to think that certain countries will emerge from the crisis unscathed or even escape with little damage.A predominant view has been that countries like India and China (which have a large domestic sector) could emerge from thepresent crisis with relatively little damage. That would be a fallacy on the lines of the de-coupling argument put forward a fewmonths ago. A statistical overview of the nature of Indian economic scenario clearly proves otherwise. India has a populationof more than 1.1 billion. The number of people who live on less than US$2 per day is nearly 60 percent of the population(according to World Bank estimate). A 2005 World Bank study pointed out that the number of people living on US$2.5 or lessthan that a day was 938 million26. This sixty percent are stated to account for about 30 percent of the consumption, while therich 10 percent are stated to account for 30 percent of the consumption. The problem for the Indian comes from two fronts (1)

problems related to increased consumption ability of the middle classes during times of economic slowdown or even outrightrecession, (2) the increased cost of capital to the corporate sector and the government. The government of India has announcedthat India would need about US$500 billion of investments in the infrastructure in the Twelfth Plan nearly US$100 billion peryear.

The above situation would have hardly been a cause for concern if the boom had continued. The Institute for InternationalFinance (IIF) estimated in September 2008, that net private flows to all the emerging markets in 2007 reached a record ofalmost US$900 billion. By 2009, this expected to come down to US$135 billion. This could be reduced further due to theconditions in the credit markets after the collapse of Lehman Brothers in September 200827. India received about US$108billion of capital inflows in 2008, of which FII flows were about US$29 billion, US$42 billion was debt, and FDI was US$15.5billion. Remittances were a more than US$27 billion. In such circumstances, it would be a miracle if the Indian economy is ableto grow at 6% in FY 2008-09 and more than 4 percent in FY2009-10.

NBFC problemsThe problems that the Indian economy faces include those that are more domestic driven rather than merely the reduction ofinflows of foreign money. A large part of the lending business is carried out by banks and the non-banking finance companies(NBFCs). The high interest costs have created trouble for the NBFC sector as they normally cater to clients who are not exactlythe most credit worthy. The NBFC sector (non-deposit taking) is estimated to be about Rs.380,000 crores28. A large part of thelending is towards, automobiles, consumer durables, housing, trade and stocks (as well as other forms of speculation). Acollapse in this segment could bring the whole system down. The fact that they are not allowed to access deposits from thegeneral public only aggravates the situation. They either borrow money from banks and other formal players or in the case ofthe smaller towns and cities the directors of NBFCs borrow money in their individual capacity using promissory note system. Adeterioration in the economic environment means that they not only can they not repay the bank loans but cannot repay theprinciple or interest to the creditors (who had lent through promissory notes) thereby setting off a cascading negative effectthrough out the smaller towns. We may already be witnessing this in the smaller towns, where consumption has been badly

affected.

Problems for the banking system:A banker has cited the finance ministers claim that banks should lend to NBFCs simply because they have about Rs.350,000crores of assets29. Apparently, there is one important aspect that the Finance Minister seems to have overlooked. As ageneralization, NBFCs have large lending to automobiles, consumer goods, stocks, and only later to trade, etc. As the economyswoes worsen, it is bound to have a domino effect on all these assets. Stocks, real estate and automobiles are already feelingthe heat. Apart from the fact that there is a problem of objectively assessing the quality of assets, valuation will continue toremain a grey area. A loan for a 10 tonne lorry (which could be as high as 8-10 lakhs) could become an investment that isworth little more than a few thousands (that too for the RC book, etc). If the dues go beyond five months then it is certain thatthe owner will not undertake any maintenance and the condition of the vehicle will be worth something only to the scrap dealerrather than the banker. The default may not be wilful but more do with a collapse in the freight rates. It is pertinent to note thatthe railways have become very efficient and with every percentage point increase in the freight traffic carried by the railways,

the effect on the automobile sector (to which NBFCs have maximum exposure) will find it disastrous. Unfortunately, a slowdownin the boom sectors of the past four years (Real Estate, Retail, BFSI and IT) means that fewer professionals in that segmentwill be willing to risk spending money on new vehicles.

A more peculiar problem that Indian banking has to face is the question of valuation of assets. Failure of valuation modelspracticed presently has been exposed as being woefully short (to be polite). VaR, the dominant system practiced by banks andothers leads to an illusion that one can quantify all risks and therefore regulate them. Most of the banks have little localknowledge due the present system that they have created (a systems based one) that ignores local conditions. More importantly,quantitative techniques have increasingly replaced qualitative aspects (even among the NBFCs). Only the small town NBFCscontinue to use qualitative methods and hence have been able to survive. Banks have a system wherein they emphasise onmeeting targets. This is useful for the banks with a short-term orientation (that are oriented to the stock markets as they canprovide excellent figures on a quarterly basis) but bad for the long-term. This is useful in the short-term simply becausepushing credit to those with doubtful track record will enable the bank to expand business and advances which in turn enable

them to show a temporary decline in non-performing assets (henceforth NPAs). NPAs are calculated as percent of the advances.




12/20

More importantly, re-financing a loan is easy during times of plenty. Interestingly, the SBI chief is reported to have stated thatrealty price will fall by about 50 percent30.

The problem of Jobs:

Is India going to achieve its target of 7 percent growth rate in the worst case scenario? This question assumes significancewhen it is apparent that the worst case scenarios for the world economy are actually turning out to be best case scenarios. Theshort answer would be no. Why? Some of these issues are highlighted below. One reason for our extreme bearishness is

because of the speed with which business conditions are deteriorating as the chart provided below indicates31. It shows therapid deterioration of the services business from April to October 2008. It is clear that India is one of the few countries amongthe emerging economies to see such a rapid deterioration. This is bound to have an impact on the segments of the Indianpopulation that have the maximum spending ability. The negative repercussions of this will be felt more intensely over the nextone year or more as the cut back reverberates through the system. It is pertinent to note that every rupee spent on housing isshared by multiple businesses.

The list wil l be exh austive and hence has been cut short only to validate arguments made in this paper.1. There has been a near collapse of the real estate sector. While the problems of the builders (mostly larger ones) have

gained widespread publicity over the past few months, an area that has often been overlooked is the impact of the lackof availability of credit in small cities and towns of India. The case of Vijayawada is instructive as the Builders Associationis more candid than elsewhere. The city of about 1.5 million has about 7000 apartments (of various categories) underconstruction. Only about 50 percent of them have completed sales. Each apartment costs between Rs.25 lakhs andRs.75 lakhs. The builders thus unsold inventory of Rs.750 crores to Rs.1000 crores32. The problem with constructionsector is that it is unlikely that the client will pay upfront. As the payments are staggered well into the future, builderswill have a substantial requirement of working capital a scare commodity in the present circumstances.

2. Job losses have only gained momentum that may be very difficult to halt. Carpet industry33, diamond industry and the

textile industry34

are reportedly in trouble. Airline industry has decided to stop paying commission to airline ticketingagents. It has been estimated that nearly 300,000 travel agents may lose their jobs35.

3. BSNL has announced that it would reduce the GSM Line capex due to market conditions. It would be smaller than thepreviously announced Rs.40,000 crores (though the company did not announce the quantum of reduction).36

4. SAIL may cut down steel production due to a fall in demand37. Steel prices in India have already fallen by 50 percentin two months.

5. Companies have decided to defer tax payments, though it may cost them a penal interest of 12 percent per annum dueto tight liquidity conditions and because it is less expensive for them to pay the penal interest than to borrow money

from banks38.

6. Aviation sector is expected to lose about Rs.10,000 crores this fiscal. Air traffic is expected to fall by about 15%39.




13/20

7. Ratan Tata has asked his companies to be cautious40.

The list goes on....

Industries to be affected the most - In order of Impact:

a) Airlines

b) Automobile & associated sectors.

c) Retail (especially luxury retail)

d) Real estate & Infrastructure (especially BOT)

e) Hospitality

f) Metals & Commodities

g) Ports

h) Housing

i) Bankingj) FMCG

Dj vu All Over Again?

A worrisome feature of the present crisis is that it appears (though difficult to validate at the present scenario) to combine themost damaging elements of the 1907 Crisis and the 1929. Unfortunately policy makers seem to be stuck with solutions that theywould like to borrow from one their experience of the 1929 crisis. Importantly, the passage of a generation seems to haveerased the collective institutional memory that they policy makers had built because of their experiences between 1914 and1945.

The collapse in shipping freight rates has ominous portent for the well being of the world economy. The consequences of thiswill be felt over the next few years and could make it felt over the next one decade (in the worst case scenario). Greater losses

would invariably lead to closure of shipping companies as they may not have the wherewithal to absorb greater losses. Thiswould in turn probably lead to shortage of carriers in the next few years. This would create conditions wherein even a minorpickup in demand (may be even due to seasonal factors) would lead to a sharp jump in the cost of transportation which in turnwould lead to a large rise in foodgrains (with disastrous consequences) for the middle and poorer classes. This is largelybecause of the cyclical nature of shipping industry but also because of the fact that it takes a long time to build a ship. Anyshortage would lead to shortages that would be felt over at least 1-3 years. Ships cannot be built over a day or a month. Wecould go back to a situation where the world (which is now being pump-primed) by huge doses of cash could lead to a sharpspurt in prices (and with it inflation) IF the experiment succeeds. This could be because of the lack of transportation and anyspare capacity to meet even a slight growth in demand.

The charts in this report seem to have a story that may make worst case scenarios look like best case scenarios. The collapsein different markets (classes of assets) seems to be testing the very foundations of modern day capitalism, which rest on twocardinal principles Trust and sanctity of the contract. As markets collapse (if they continue to do so in the next six months) it

may become increasingly tempting and it may become increasingly economically profitable to dishonour a contract or defaulton their commitment. Derivatives could be one such area. This would not be difficult as a large part of the derivatives contractis mostly unregulated and outside the formal system of exchanges, etc. Most of it is part of the shadow banking system thatis not regulated. There is nothing much most of the governments can do at the present juncture - expect hope for the bestwhile increasing spending on public works. It is hoped that this will lead to a cushioning of job losses over a period of time.Spending has already collapsed. The collapse in orders of Volvo reflects the poor state of affairs. The firm announced that ithad received a mere 115 orders for heavy trucks in Europe in the third quarter, down by 99.7% on the 41,970 order bookingsduring the same period of 200741.

The problem for emerging market companies is bound to be compounded over the next one year when they will have torefinancing US$450-billion in notes, bonds and loans. According to Dealogic, the debts come due next year, with another $487-billion maturing in 2010. Between bonds and syndicated loans, emerging market companies have borrowed roughly $1.3-trillion in the last three years or so, according to various industry estimates. All these loans come due by 2014. These bonds

and loans carry $60-billion of interest payments through the end of 2009. The collapse in commodity prices is restricting




14/20

earnings and cash flow also, reinforcing the risks these companies face gaining access to financing. JPMorgan estimates anemerging market corporate bond default rate of 1 per cent, up from 0.7 per cent this year, on $518-billion worth of bondsoutstanding42.

3 Scenarios for the World Economy

It is imperative to qualify these scenarios with a disclosure: The ideas elucidated below seem improbable but plausible. Ourideas in May 2008 seemed improbable. After all, this crisis (which seems to have combined the worst of 1907 and 1929) has

been to anticipate the unanticipated and prepare for the improbable but plausible.Scenario I

This is also the best case scenario. The present day synchronised cut to near zero percent interest rates may just about createanother era of easy money in the next year or two. This would gradually again endear people to take bigger risks after allenlightened self interest (or more like unchecked greed) may yet make a come back. As monetary policy takes about 6-8months to work its way through to the system, this scenario envisages a recovery to start sometime around March-June2009.However, this best case scenario is subject to a number of important pre-conditions being satisfied. This best case scenario isbased on the following assumptions, which include:

1. No further deterioration in the credit markets;

2. Reduced Volatility in the currency markets;

3. De-leveraging is at the end of the cycle;

4. That monetary policy is still the most effective tool;

5. Analysts estimates about earnings are correct.

6. An ineffective president of USA (George Bush) does not get adventurous and does not attack Iran.

7. Housing prices stop falling in USA and Europe.

While theoretically possible, most of the assumptions are unlikely to take place in the next three to six months. While the moneymarkets have calmed down to an extent, some important indicators seem to indicate that there is a lull rather than a recovery.The readings in some of the important charts cited above over the past ten days (since November 1, 2008), indicates that themarkets are far from normal.At best , some of them have stabilised to pre-Lehman bankruptcy levels. An indicative chart isthat of cited in page 7, banks are still not lending to each other. The reading continues to be above one. Three years ago, it washovering around 0.2-0.4. Baltic Freight Indexs downward hurtle has come down relatively: instead of falling 10 to 12 percenta day, it now falls by around one percent or less a day with the occasional rise (since November 1, 2008). The only positivereading has been in the form of HIBOR and US-TED spread which are more or less back in the territory of the pre-Lehmancollapse era. This could well be the case of bears pausing for breadth rather than the other way round. The black swan thatcould upset this best case scenario is Assumption 6: George Bush, member of the born-again Christian extreme right maydecide that he has had enough of the Ayotollahs of Iran and decide that he could send a couple of missiles into Iran. That couldunleash a disaster on the world economy that would have unforeseen negative consequences. What is the probability of thathappening? 50:50. He and his Republican adjuncts have nothing to lose and a world to gain (especially among their far-rightfollowers in the long-term). Why? Consider the following:

1. In case Obama is not able to deliver then after four years, George Bush and his brand of Republicanism could justmake a comeback. His brother Jeb Bush (the guy who rigged the elections in Florida in 2000) could be back in thereckoning as a candidate, while rallying the republican faithful.

2. It could be best way to get back at the Democrats and the American voters, who have rejected his politics. He is notanswerable to anybody at present.

3. Russia is at its weakest point in the past seven years. They themselves are on the verge of an economic collapse (if oilcomes back to US$40 and other commodities collapse due to a long-recession in the world), one should not besurprised to see a repeat of 1998, when Russia defaulted on its foreign debt. Moreover, it is not in a position to take astrong stance like it did in the case of Georgia recently.

4. Iran itself has a problem of balancing its budget and its economy is not in a good shape due to the collapse in oil prices.




15/20

Scenario II

This is the median scenario that we provide. The stimulus along with various other measures by the US Government agenciesand the international agencies do work over the medium term (say one year) then we may have a recover by October-December 2009. This recovery hope rests largely on the fact that various governments are pumping in huge sums of money.However, it would be a mistake to think that a recovery would mean the start of a roaring bull run. That roaring bull-run couldbe at least 4-5 years away. It is pertinent to note that in normal circumstances, it would take at least about 1-2 years beforerisk aversion is overcome. Even if risk-aversion were to be overcome, then it would still take a long-time before money flows

back into India, considering that there will be better opportunities in the developed world. As and when economies do come ofout of recession, the opportunities are bound to abound in USA and Europe and there would be no need for money to chasehigher returns the world over.

However, Scenario I & II would have to have to take into account that investors will have to discount the huge fiscal deficit andthe competition for capital among the developed world and China. As countries are forced to spend money, it would invariablylead to these countries borrowing money from the markets. It would also lead to a situation where debt investors have greateropportunities as they can lend to countries (in order to take an exposure that is relatively safe vis-a-vis the corporate sector)instead of buying corporate bonds. Corporate bonds may look attractive over the medium term due to the high yields at presentdue to falling prices that which in turn is due to deleveraging that is taking place. This crowding out of the resources willinvariably lead to companies having to borrow at a higher cost, a fact that would lead to lower corporate profits. A consequenceof this recovery (due to pump priming) by various governments would be that there is a high chance of inflation rearing its headagain. As the part on shipping in this report has highlighted, any recovery in the world economy would invariably catch most of

the sectors short of capacity (due to the closures taking place). This would lead to prices (and inflation) shooting up all roundthe world.

This scenario is also subject to important assumptions that have been made in Scenario I.

Scenario III

This is our worst case scenario. This would lead to disastrous consequences for the world economy. The fact that most of thebanks have liquidity black hole43 would mean that they would not increase their lending over the next two or three quarters.This would lead to a semi-paralytic stage in the world economy as companies go insolvent due to the lack of credit. Asdeleveraging gathers momentum, the next shoe to drop will be hedge funds, which in turn will only make players in thederivative markets more nervous, thereby expanding the need to be ahead of the curve in selling. Uncertainty will (as italready is) be compounded by the fact that nobody knows how bad the problem is. Investors hate uncertainty and hence would

prefer to go back into US Treasury bonds rather than risk losses. Since inflation is collapsing with the collapse in demand andprices, negative yield is no more an issue. Joseph Stiglitz has opined that even if Obama does everything right then it wouldtake about 18 months before the US economy can be turned around44. It is difficult for the markets to rise but very easy to fall they can fall under their own weight. If any two assumptions for Scenario I are violated then we are looking at this (scenarioIII, worst case scenario) a likely event. We would believe that we have just crossed the mid-point in the crisis. We have togrow through an interregnum of a long-sideways movement before confidence recovers into the system. One need not besurprised if it turns out to be a lost decade for the USA, and the world economy with it.

What would happen during the course of this worst case scenario? The multitude of packages would not work. The cost to theworld economy would far exceed US$15 trillion. The trigger for yet another collapse could come with either the Big Three automajors going bankrupt and in the panic that follows we would probably have a large number of highly indebted global majorsfrom different industries going bankrupt. It has been pointed out that a bankruptcy filing by a single Detroit car company couldcost the US economy nearly US$175 billion in the first year45 (when there will be legal cases and bankruptcy proceedings) of

which personal income losses could be in range of US$125 billion while it could increase to more than US$275 billion. Joblosses could total nearly 2.5 million (including about 1.4 million in industries not directly tied to manufacturing46.

The second phase of the crisis need not start in USA. It could well be some countries or hedge funds going insolvent. Ascurrencies become more volatile combining with collapsing commodity prices would be the next area to keep an eye on. Wewould have a scenario where very few people, companies and countries eking out sufficient amounts to balance their budgets.That in turn would reverberate through out the world economy. Russia is stated to be nearing a crisis point, which wouldprobably be trigged once oil falls below US$40. Smaller countries in emerging Eastern Europe would then collapse like ninepins. Most of Africa, is anyway too poor to make much of a difference to the world economy. However, South Africa is already

facing pressure due to the collapse in the commodity prices and the pressure on currency.

A collapse in emerging economies of Eastern Europe would lead to even greater problems for the European banks. S&P in itsreport titled Gaping Refunding Pipeline in Europe has pointed out that Europe could face a credit crunch that could makethings worse. It warns that nearly US$2.1 trillion of debt is coming due in Western Europe and Britain over the next three years.




16/20

Banks and financial institutions account for nearly 72 percent. More problematically, companies have about US$586 billion ofdebts. This excludes the more than US$160 bil lion dollars of GE debt due before the end of 200947.This excludes emergingmarket debt which exceeds US$800 billion. Any hint of trouble will spark another round of panic selling. Importantly, Europeanbanks in countries such as Sweden, Netherlands, Belgium and others have banking sector leverage that is very large inproportion to the relative size of their economies. UK household debt was 165 percent of personal income in 2007 about 50percent higher than the burden before the onset of the recession of the early 1990s48.There are two way be which these countries (along with help from USA) could attempt to overcome the forthcoming crisis: (1)print more money, and (2) default or violate the sanctity of the contract. The first will postpone the crisis and would lead to

changed perceptions about the nature of the crisis: it would lead to hyper inflation. Any attempt at the second solution wouldbe disastrous for the world economy. Thus the next two years are going to see two diametrically opposite concerns firstdeflation, then inflation.

Among the nations (emerging markets) countries like India, that are largely in denial, about the state of their economy wouldbe severely hit as they are least prepared (due to their blissful ignorance). If the global crisis were to continue for more thantwo years then the case for India would be a 1991 re-dux. A number of companies are overleveraged (almost all the real estateplayers) and a number of large companies have announced huge expansion plans, most of which are half way through. Aprolonged crisis would not only reduce their profits and make capital scarce, but would also lead to a situation of veryexpensive cost of capital. India is a country that is largely dependent on imports and its few exports are dominated by services.The case of Russia (whose reserves have reduced by 25% since August) shows how quickly these reserves can dissolve. Theproblem for India is compounded by the fact that India is a country of extremes. There are 27 Indians with a net worth of US$1billion or more, while 456 million Indians live on less than US$1.25 a day (World Bank estimates)49. India is one of the fewcountries which had a huge deficit at the top of the economic cycle. It is definitely the poorest among those that could afford tohave a deficit that when combined was more than or nearly 9 percent of the GDP when it was growing at 9 percent. Unlike inthe past, consumer debt is at a record, and at a time when they can least afford it.

All the large business groups in India are highly leveraged. Ratan Tata has been the most candid. This is not to claim that al lor most ofthe largest business groups will become insolvent. The larger players (especially those who have traditionally beendiversified will be able to raise capital, albeit at a higher cost). If there is one house that will survive it will be the House of Tata(as they have a very strong institutional memory) and more importantly they were there (at the brink) in the late 1990s. Butthey too have been late, very late, in realising the nature of this crisis. Other second rung groups in India may not be sofortunate, especially those who are in services, realty and infrastructure. This is because a large number of them had movedaggressively into those sectors from late 2007 and early 2008 again due to their intellectual deficiencies as they wereconvinced about the possibility of decoupling theory, that too in the era of globalisation.

A problem that is generally not factored in is that at each point of the progression of the crisis we tend to see huge losses forhedge funds, pension funds and other large institutional players. Another issue that most companies and countries would haveto deal with (if the crisis extends more than another year) is that a deterioration of the macro-economic environment wouldinvariably lead to cut in ratings of various companies in the financial as well as other sectors. Each time ratings are cut it wouldreverberate in other sectors as companies would have to come up with additional collateral or would have to shrink their books both difficult propositions in the present scenario. Importantly, as the leverage ratio needs to drop drastically from thepresent levels (though it has come down from all time high) it would lead to further debt deflation and further write offs. Theillustration of Goldman Sachs is instructive. Its leverage ratio has come down from 26 to 1 to the mid-October level of 19 to 1is still on the higher side. Before the boom began, it was more like 10 to 1. It has been pointed out that a 4 percent decline inthe value of the firms assets would wipe out shareholder equity50.

It not unlikely, that a large number of players are increasing their short-side hedges to counter the move downward. Just as the

down move caught them unawares, it is likely that a majority of the players would be caught off guard when the recoverystarts. That would lead to another round of losses on their wrongly hedged positions, thereby prolonging the pain. The recentvolatility in the commodity and the currency markets could come back to haunt traders. It would not be off the mark to suggestthat by the end of this bear market at least about 60 percent of the highly leveraged players would be wiped out. The majorityof the players are in the banking, financial, real estate, oil and gas, and shipping players. These were the segments which werecarried away by their own thinking: that trees will grow to the sky.

A pertinent question that we would have to ask, is what happens if our arguments in Scenario III are wrong? The short answeris nothing much, one loses about 3-6 months of time in a business environment that is competitive. But, what if we are right?It could be the difference between life and death. We believe that the changes introduced by information technologywouldinvariably lead to a situation where the fall has been quickened to the nature of capital and information flows. A similarsituation is bound to exist when a rebound starts when the up-move would be quicker that in the past. What would actuallymake the difference would be the analytic framework of companies that have been able to prepare themselves through various

scenarios. It has been pointed out facts are free, opinion is sacred. This we believe is the underlying principle andutility of our

bi-annual Global Economic Outlook.




17/20

We provide some general observations about what companies could do to overcome the present recessionary (or evendeflationary environment).

What Com panies need to do to overcome the Recession:

1. Conserve Cash cut debt (Zero debt is the safest)

2. Keep Cash (in deflation, cash graduates to the King of Kings)

3. Cut costs: Slash all wasteful expenditure

4. Freeze hiring, etc. Streamline functioning. Implement solutions that would be difficult to plate at other times using thepoor conditions as the trigger.

5. Plan for the worst but hope for the best

6. Realistic Expectations

7. Continue to Invest in R&D and give priority to innovation

8. Go to the drawing board and start preparations for the coming boom but without any financial commitment atpresent.

9. Keep your flock together continue to keep morale high among employees.

10. Dont give up hope: we all live on that (unless we enter deflation, when you should abandon all hope and start shortingany or all assets)

Post Script: World Economy at the Present Juncture

Source: http://www.economist.com/finance/displaystory.cfm?story_id=12552204

(Footnotes)

1Cited in The Financial Times.

http://www.ft.com/cms/s/0/e1eb0f60-a5a7-11dd-9d26-000077b07658.html

2 In the USA, in 1980 the domestic financial sector profits accounted for approximately 13 percent of the pre-tax profits. By2007, this had increased to about 27% of the domestic pre-tax profits - Federal Reserve data cited in Justin Lahart, Has theFinancial Industrys Heyday come and Gone?, The Wall Street Journal, 28 April 2008, p.A2.

3 http://www.imf.org/external/pubs/ft/wp/2008/wp08224.pdf

4 Thomas Nagel (1986), The View From Nowhere, Oxford University Press, New York, p.1.

5 This was implied by Rajeev Chandrasekhar who was particularly incensed that the RBI governor was sending

wrong signals by his candid admission that he did not know what the next year would look like. It is pertinent to note thatshort-term measures undermine the very basis on which markets function the legitimizing role of institutions of the state.There is a limit to attempting to expand the liminal point. Recessions or crisis periods are not the time to test the liminal points.That should be taken up in a bull market which the Indian state clearly missed.

6 ://www.economist.com/business/displaystory.cfm?story_id=12380997

7 http://business.timesonline.co.uk/tol/business/industry_sectors/banking_and_finance/article5069065.ece

8 http://www.reuters.com/article/GCA-CreditCrisis/idUSTRE4A62D920081107

9 http://www.bankofengland.co.uk/publications/fsr/2008/fsrfull0810.pdf

10http://www.bloomberg.com/apps/news?pid=20601087&sid=aOngFPgq7r3M&refer=home




18/20

11 http://www.bloomberg.com/apps/news?pid=20601109&sid=a0CcmxJQnS7A&refer=home

12http://www.bloomberg.com/apps/news?pid=20601087&sid=aUFuddxXkw8k&refer=home

13http://www.bloomberg.com/apps/news?pid=20601109&sid=aACeVPlPw2mM&refer=home

14http://www.bloomberg.com/apps/news?pid=20601087&sid=ahkq91XcsKnY&refer=home

15 http://www.telegraph.co.uk/finance/comment/ambroseevans_pritchard/3374228/Recession-hits-Europe-as-Club-Med-debt-worries-grow.html

16 http://www.bloomberg.com/apps/news?pid=20601087&sid=agGBpPduI3E4&refer=home

17 http://www.bloomberg.com/apps/news?pid=20601087&sid=agGBpPduI3E4&refer=home

18 http://www.nytimes.com/2008/11/07/business/07retail.html?

19 ://www.ft.com/cms/s/0/7cc47dfe-aa95-11dd-897c-000077b07658.html

20 http://www.bloomberg.com/apps/news?pid=20601087&sid=augL9_cumtA4&refer=home

21http://www.bloomberg.com/apps/news?pid=20601083&sid=aiU5uYzjzFq8&refer=currency .

22http://www.iht.com/articles/2007/08/14/news/14oxan-unitedstates.php

(Website last visited 10 November 2008).

23http://www.bloomberg.com/apps/news?pid=20601087&sid=aKX9lmEoZkTI&refer=home

24 http://www.ft.com/cms/s/0/3496c848-ae91-11dd-b621-000077b07658.html

25 For an interesting analysis see Prospects of an industrial recession, Businessline, 4 November 2008, p.9.

26 Cited in Swelling ranks of the poor, The Businessline, 23 September 2008, p.9.

27 http://www.iif.com/press/press+81.php

28 A figure provided by KV Kamath , the President of CII. Save financial sector to save the economy: Kamath,




19/20

The Financial Express, 3 November 2008, p.4.

29 Lenders wary of loans to NBFCs, Business Standard, Section II, p.4.

30 Realty prices to fall 50%, says SBI chief, The Financial Express, 9 November 2008, p.1.

31http://www.ft.com/cms/s/0/9e246116-ae83-11dd-b621-000077b07658.html

(website last visited 10 November 2008)

32 Now, builders are feeling the pinch!, The Hindu, Vijayawada Edition, 9 November 2008, p.2.

33 Thousands lose jobs in carpet export hub, Business Standard, 10 November 2008, p.1.

34 Looming Trouble, Businessline, 4 November 2008, p.8. The textile sector accounts for about 11 percent of Indias exportsand 4 percent of GDP. Half of the produce is exported to USA and Europe. The sector provides livelihood to nearly 35 mill ionpeople in India.

35 3 lakh travel agents may lose job,Business Standard, 10 November 2008, p.4.

36 BSNL GSM Line capex may come down,Business Standard, 10 November 2008, p.4

37

SAIL may cut down steel production, Business Standard, 10 November 2008, p.4.38 Firms defer tax payments, Business Standard, 10 November 2008, p.1.

39 Aviation files into negative growth zone, The Economic Times, 10 November 2008, p.1.

40 Ratan Tat to Group Cos: Freeze acquisitions, capex plans, The Businessline, 13 November 2008, p.1.

41http://www.economist.com/finance/displaystory.cfm?story_id=12523906

42http://www.globeinvestor.com/servlet/story/RTGAM.20081031.wemerging1102/GIStory/

43 http://www.economist.com/finance/displaystory.cfm?story_id=12552204

44

http://www.bloomberg.com/apps/news?pid=20601213&sid=aKmxK0Dtpv4I&refer=home45 http://www.nytimes.com/2008/11/13/business/economy/13bankruptcy.html?

46 Center for Automotive Research cited in Bloomberg.

http://www.bloomberg.com/apps/news?pid=20601087&sid=a8oQkqyRcU6Y&refer=home

47 http://www.bloomberg.com/apps/news?pid=newsarchive&sid=a4JmrNtu4Fpw

48 http://www.telegraph.co.uk/finance/comment/ambroseevans_pritchard/3448664/Abandon-all-hope-once-you-enter-deflation.html

49 http://www.bloomberg.com/apps/news?pid=20601110&sid=aRwDkZL1YIYo

50 http://www.bloomberg.com/news/marketsmag/mm_1208_story1.html




20/20

Krisani Global Economic Outlook 2008. Pg. 17 of 17

global economic out look no v 2008

Documents