Believe it or not. If the predictions made by Forbes Magazine become correct, by 2014 the richest man on earth will be an Indian. And who can be him?

Well none other than Mukesh Ambani, the chairman of Reliance Industries, who incidentally is already the India’s richest man. Currently, Ambani, 53, ranks in fourth place on the world’s billionaires’ list.

Richest Man on Earth : In 2014 ?

Here is what the Forbes Team has said:

“One of the predictions is that Reliance Industries’ chief Ambani, who currently has a net worth of $29 billion, pips the world’s richest man Mexican businessman Carlos Slim to top Forbes’ rich list in 2014,”

Ambani’s net income would swell to $62 billion against Slim, which is facing political, financial chaos in Mexico.

This is a  vision of the coming decade sketched from real data, projections and facts whenever possible – though we’ve injected a dose of rigorous science fiction to fill the gaps,”

Forbes said about its special 2020 report called ‘What Happens Next — Our Look Ahead’.

There have been many other predictions in this interesting report. You can read this report here:

What Happens Next — Our Look Ahead’

These days if you happen to meet any common citizen of India and ask him about the most annoying, painful and consistent problem he is facing these days, in all probability, a majority of Indian citizens will say- “It’s huge rise in prices of common food items of daily needs”.

Believe it or not, but in India, inflation is taking it toll on each and everybody. Except for the privilege few – most Indians are feeling the heat in their domestic front. The prices of all food prices – be it vegetables, Fruits, Dairy Products, Cereals or You name what – almost every food item has become costly. The budget of most Indian family has become extremely tight and many people are making daily adjustment in their needs and demands.

So why food items have become so costly in India? Is it a conspiracy by traders/black marketers who have hoarded most of the material in their hidden shops ? Or is it a game plan by all the opposition parties in India? Or a Divine but cruel justice for our collective sins?

You may guess any of the answer you want. But the fact is that this entire problem has its roots in our failure and gross negligence to give the Agriculture- the due importance it deserves.

Do you know that :

According to the World Bank, transporting grapes to the Netherlands from India costs more than twice as much as transporting them from Chile, even though Chile is twice as far.

This year (i.e. in 2010), for the first time in the country’s history, India’s factories may contribute more to GDP than its farms, forests and fisheries.

The above two basically are part of an extremely interesting and informative article recently published in The Economist’ on the state of Indian Agriculture which explains all.

Read the story here : Agriculture in India :  Crop circles

I got this email forward from my brother today. 

It is claimed to be from a Satyam employee, who has a slightly different opinion on the whole Satyam Debacle ?  A very interesting read indeed …..

At a time when almost 90% of my Satyam friends are cribbing about the fraud and betrayal by Ramalinga Raju, I have a slightly different opinion. It’s bold of me to write this in black and white but this comes straight from my heart and experience.

Let me start by quoting an example of 2006. Most of my friends were unemployed with 50-60% plus marks in BTech, with a degree from an average University and hunting madly for a job. Whether people accept it today or not but the truth remains that Satyam was the ONLY saviour and the only mass recruiter who was ready to accept students who had back logs but had cleared them and also it did not put a very strict minimum marks criterion. And this was true not only for my small college at Lucknow but also those across India . Satyam is the fourth largest in IT in India. Looking at India’s population I really want to thank Raju for giving some 54000 Indians jobs atleast for all these years . He was the reason for the revival of confidence and the reason for the bread and butter for many a families.

Satyam training was renowned all over India. Their STC training centre created numerous love stories and unexpected rekindling of a youthful environment where girls and boys were more indepenent than their college days . I remember most of my Satyam friends felt that they made better friends at Satyam’s three to six months training than those in the four years of BTech.

Unfortunately people forget to thank God in sad times . I understand that what Raju did is deplorable and unpardonable. He should have treated business more formally and not dealt with it like a family affair . He should have been strict a couple of months or years before itself. Why did he hire so many non potential candidates and keep them on bench? When were the managers and the team mates last told that if they dont work hard, they will lose their job? Business cannot be run lousily.

I have been staying with some 200 odd girls for the last 2 years and many of them are from Satyam. Moreover I network a lot and I have lots of male friends at Satyam . I have seen how people tail gate to Satyam, how they give their swipe cards to others to swipe it on their behalf , how female employees have gone home sharp at 6am irrespective of when they landed at office, how employees sit at home for months at a stretch, prepare for all kind of post graduate entrance exams and still enjoy a full month’s pay, how often they went for movies at local theatres at office hours, how often employees went to office just to sign on registers in the morning and at evening, how often they faked their certificates , how often they put unlimited fake medical and house rental bills.

How can we blame just one man when EACH AND EVERY person was disloyal ? How can we exclude Auditors like PwC ? How can we exclude the Board of Directors who have washed their hands off so clean? How can we exclude banks who gave hefty loans without true verfication? How can we exclude the Chief Minister of AP who allowed leniency for Raju’s fellow businessman? How can we exclude managers who were never able to trace which bench employee under him had been away from office for how long ?

Yet how can people forget this is the same man whose ideas and potentials gave them an identity for the past several years? How many couples found the right match at an IT industry , courtesy Satyam and how many Andhra farmers benefited from their crores of investments in Satyam shares .How can people forget that Satyam launched its offices right at the doorsteps of a residential colony, where people can simply walk to work ?

The most gruesome experience that I can recollect was when a Satyam tag wearing person was waiting to attend an interview and I overheard him saying that he was in a business meeting at the My Home Satyam ( Madhapur) office when he was sitting right infront of me at a totally different company. When employees themselves show such a lousy attitude and dont care a damn for the brand that they carry around their neck, how can they expect others to care?

I am not saying that ALL Satyam employees are bad. I have known very dedicated people too, but my point is very clear, before pointing fingers at others, introspect .There are thousands of people who have completed certifications at the cost of Satyam, got trained at Satyam. Satyam made several freshers stand on their feet to get better jobs elsewhere across the globe and attain onsite exposure through Satyam.

What Raju did was to keep the business of Satyam going at any cost. I see a very smart man in him when he understood that he should rather accept his mistake than be caught by the USA laws . I see a selfish father in him too that he put a lot at stake for Maytas. However, he resigned with a lot of dignity and his letter of resignation shows humility. It takes a mammoth amount of courage to accept your mistake in public at a time when the media is ready to blow everything out of proportion. If humans dont make mistakes who else would ?

My last salute to this man is for creating such mass employment in India for 57k employees and 57k families when even opening a beetle(pan) shop in a lane in India is a challenge !! Thanks to him for creating income for all the thousands of families who benefited through food chains, the tiffin wallahs, the transport people and all those who made money by renting their houses.

I read he donated Rs 12000 crores from his personal pocket to give the January salary of his Satyam employees. Today Satyamites call Raju a FRAUD. The true and loyal Satyamites surely have all the reasons to say this word. But all the rest who sucked every rupee out of Satyam without doing any value addition need to understand – who was a bigger fraud.

Owing to the recent mess in the stock market, often our discussion in office revolves around falling stocks of Indian companies. Just a few days ago when we were involved in one such discussion, one friend guessed about what Warren Buffet must be doing these days. After all, this legendary investor, who became world’s richest man this year, has earned his fortune in share markets.

We could only make some wild guesses about him. After all, he has huge financial resources with him and  can easily withstand any crisis. However, we all were agree that this smartest investor on the planet must be exercising caution in buying share during these trouble times.

How wrong I was. Recently I came across an article on the current economic crisis written by Warren Buffet himself. This article is an eye opener for many of us who have become a victim of what many expert are describing as ‘irrational pessimism’.

You can read this entire article here

However, I would like to share with  you some golden nuggets from this article.

So

What Warren Buffets Does When Stock Market Falls ?

Simple. He buys more stocks

And if price keeps falling, he will buy more stocks in huge quantity.

Do you know why ?

Because a simple rule dictates his buying:

Be fearful when others are greedy, and be greedy when others are fearful.

Because he knows that the fear is temporary. The fears regarding long-term prosperity of America’s many sound companies make no sense. These businesses will indeed suffer earnings hiccups, as they always have.

But most major companies will be setting new profit records five, 10 and 20 years from now. This genius investors knows very well that it is not possible to predict the  short-term movements of the stock market. He also have no idea as to whether stocks will be higher or lower a month – or a year – from now.

What he knows, however, is that the market will move higher, well before either sentiment or the economy turns up.

Over the long term, the stock market news will be good. In the 20th century, the United States endured two world wars and other traumatic and expensive military conflicts: the Depression, a dozen or so recessions and financial panics, oil shocks, a flu epidemic, and the resignation of a disgraced president. Yet the Dow  rose from 66 to 11,497.

In short, bad news is an investor’s best friend. It lets you buy a slice of America’s future at a marked-down price.

Still many people lose money in the markets ?

Yes they did. Because they bought stocks only when they felt comfort in doing so and then proceeded to sell when the headlines made them uneasy.

A lesson for all of us : Never enter into the market for a short term gain. Develop the acumen to predict the rise of the market before everybody. Develop the quality of patience. To achieve prosperity, become a long term investor.

Today, people who hold cash equivalents feel comfortable. They shouldn’t. They have opted for a terrible long-term asset, one that pays virtually nothing and is certain to depreciate in value. Indeed, the policies that government will follow in its efforts to alleviate the current crisis will probably prove inflationary and therefore accelerate declines in the real value of cash accounts.

Equities (i.e. Shares) will almost certainly outperform cash over the next decade, probably by a substantial degree. Those investors who cling now to cash are betting they can efficiently time their move away from it later. In waiting for the comfort of good news, they are ignoring Wayne Gretzky’s advice: “I skate to where the puck is going to be, not to where it has been.”

Warren further says that he don’t like to opine on the stock market.However, he’ll nevertheless follow the lead of a restaurant that opened in an empty bank building and then advertised: “Put your mouth where your money was.” Today, my money and my mouth both say equities.

No wonder he is the richest and smartest investor on earth.

Now since you have read this post, I request you to read it once again and this time on places where the word America has come, replace it with India (or Indian as appropriate). You’ll see an entire different  picture of our economy.

These days the most talked about news is the current financial crisis that has engulfed the world economy. Every day the main headline of all newspapers is about our falling share markets, decreasing industrial growth and the overall negative mood of the economy.  For many people an economic depression has already arrived whereas for some it is just round the corner. In my opinion the depression has already arrived and it has started showing its effect on India.

So what has caused this major economic upheaval in the world? What is the cause of falling share markets the world over and bankruptcy of major banks? In this article, I shall try to explain the reasons for recent economic depression for all those who find it difficult to understand the complex economics lingo and are looking for a simple explanation.

It all started in US…

In order to understand what is now happening in the world economy, we need to go a little back in past and understand what was happening in the housing sector of America for past many years. In US, a boom in the housing sector was driving the economy to a new level.  A combination of low interest rates and large inflows of foreign funds helped to create easy credit conditions where it became quite easy for people to take home loans. As more and more people took home loans, the demands for property increased and fueled the home prices further. As there was enough money to lend to potential borrowers, the loan agencies started to widen their loan disbursement reach and relaxed the loan conditions.

The loan agents were asked to find more potential home buyers in lieu of huge bonus and incentives. Since it was a good time and property prices were soaring, the only aim of most lending institutions and mortgage firms was to give loans to as many potential customers as possible. Since almost everybody was driving by the greed factor during that housing boom period, the common sense practice of checking the customer’s repaying capacity was also ignored in many cases. As a result, many people with low income & bad credit history or those who come under the NINJA (No Income, No Job, No Assets) category were given housing loans in disregard to all principles of financial prudence. These types of loans were known as sub-prime loans as those were are not part of prime loan market (as the repaying capacity of the borrowers was doubtful).

Since the demands for homes were at an all time high, many homeowners used the increased property value to refinance their homes with lower interest rates and take out second mortgages against the added value (of home) to use the funds for consumer spending. The lending companies also lured the borrowers with attractive loan conditions where for an initial period the interest rates were low (known as adjustable rate mortgage (ARM). However, despite knowing that the interest rates would increase after an initial period, many sub-prime borrowers opted for them in the hope that as a result of soaring housing prices they would be able to quickly refinance at more favorable terms.

Bubble that burst…

However, as the saying goes, “No boom lasts forever”, the housing bubble was to burst eventually. Overbuilding of houses during the boom period finally led to a surplus inventory of homes, causing home prices to decline beginning from the summer of 2006. Once housing prices started depreciating in many parts of the U.S., refinancing became more difficult. Home owners, who were expecting to get a refinance on the basis of increased home prices, found themselves unable to re-finance and began to default on loans as their loans reset to higher interest rates and payment amounts.

In the US, an estimated 8.8 million homeowners – nearly 10.8% of total homeowners – had zero or negative equity as of March 2008, meaning their homes are worth less than their mortgage. This provided an incentive to “walk away” from the home than to pay the mortgage.

Foreclosures ( i.e. the legal proceedings initiated by a creditor to repossess the property for loan that is in default ) accelerated in the United States in late 2006. During 2007, nearly 1.3 million U.S. housing properties were subject to foreclosure activity.  Increasing foreclosure rates and unwillingness of many homeowners to sell their homes at reduced market prices significantly increased the supply of housing inventory available. Sales volume (units) of new homes dropped by 26.4% in 2007 as compare to 2006. Further, a record nearly four million unsold existing homes were for sale including nearly 2.9 million that were vacant. This excess supply of home inventory placed significant downward pressure on prices. As prices declined, more homeowners were at risk of default and foreclosure.

Now you must be wondering how this housing boom and its subsequent decline is related to current economic depression? After all it appears to be a local problem of America.

What complicated the matter?…

Unfortunately, this problem was not as straightforward as it appears.  Had it remained a matter between the lenders (who disbursed risky loans) and unreliable borrowers (who took loans and then got defaulted) then probably it would remain a local problem of America. However, this was not the case.  Let us understand what complicated the problem.

For original lenders these subprime loans were very lucrative part of their investment portfolio as they were expected to yield a very high return in view of the increasing home prices. Since, the interest rate charged on subprime loans was about 2% higher than the interest on prime loans (owing to their risky nature); lenders were confidant that they would get a handsome return on their investment. In case a sub-prime borrower continued to pay his loans installment, the lender would get higher interest on the loans. And in case a sub-prime borrower could not pay his loan and defaulted, the lender would have the option to sell his home (on a high market price) and recovered his loan amount. In both the situations the Sub-prime loans were excellent investment options as long as the housing market was booming. Just at this point, the things started complicating.

With stock markets booming and the system flush with liquidity, many big fund investors like hedge funds and mutual funds saw subprime loan portfolios as attractive investment opportunities. Hence, they bought such portfolios from the original lenders. This in turn meant the lenders had fresh funds to lend. The subprime loan market thus became a fast growing segment.  Major (American and European) investment banks and institutions heavily bought these loans (known as Mortgage Backed Securities, MBS) to diversify their investment portfolios. Most of these loans were brought as parts of CDOs (Collateralized Debt Obligations). CDOs are just like mutual funds with two significant differences. First unlike mutual funds, in CDOs all investors do not assume the risk equally and each participatory group has different risk profiles. Secondly, in contrast to mutual funds which normally buy shares and bonds, CDOs usually buy securities that are backed by loans (just like the MBS of subprime loans.)

Owing to heavy buying of Mortgage Backed Securities (MBS) of subprime loans by major American and European Banks, the problem, which was to remain within the confines of US propagated into the word’s financial markets. Ideally, the MBS were a very attractive option as long as home prices were soaring in US. However, when the home prices started declining, the attractive investments in Subprime loans become risky and unprofitable.

As the home prices started declining in the US, sub-prime borrowers found themselves in a messy situation. Their house prices were decreasing and the loan interest on these houses was soaring. As they could not manage a second mortgage on their home, it became very difficult for them to pay the higher interest rate. As a result many of them opted to default on their home loans and vacated the house. However, as the home prices were falling rapidly, the lending companies, which were hoping to sell them and recover the loan amount, found them in a situation where loan amount exceeded the total cost of the house. Eventually, there remained no option but to write off losses on these loans.

The problem got worsened as the Mortgage Backed Securities (MBS), which by that time had become parts of CDOs of giant investments banks of US & Europe, lost their value. Falling prices of CDOs dented banks’ investment portfolios and these losses destroyed banks’ capital. The complexity of these instruments and their wide spread to major International banks created a situation where no one was too sure either about how big these losses were or which banks had been hit the hardest.

Mayhem in the banks….

The effects of these losses were huge. Global banks and brokerages have had to write off an estimated $512 billion in subprime losses so far, with the largest hits taken by Citigroup ($55.1 billion) and Merrill Lynch ($52.2 billion). A little over half of these losses, or $260 billion, have been suffered by US-based firms, $227 billion by European firms and a relatively modest $24 billion by Asian ones.

Despite efforts by the US Federal Reserve to offer some financial assistance to the beleaguered financial sector, it has led to the collapse of Bear Sterns, one of the world’s largest investment banks and securities trading firm. Bear Sterns was bought out by JP Morgan Chase with some help from the US Federal Bank (The central Bank of America just like RBI in India)

The crisis has also seen Lehman Brothers – the fourth largest investment bank in the US and the one which had survived every major upheaval for the past 158 years – file for bankruptcy. Merrill Lynch has been bought out by Bank of America. Freddie Mac and Fannie Mae, two giant mortgage companies of US, have effectively been nationalized to prevent them from going under. Reports suggest that insurance major AIG (American Insurance Group) is also under severe pressure and has so far taken over $82.9 billion so far to tide over the crisis.

From this point, a chain reaction of panic started. Since banks and other financial institutes are like backbone for other major industries and provide them with investment capital and loans, a loss in the net capital of  banks meant a serious detriment in their capacity to disburse loans for various businesses and industries.  This presented a serious cash crunch situation for companies who needed cash for performing their business activities. Now it became extremely difficult for them to raise money from banks.

What is worse is the fact that the losses suffered by banks in the subprime mess have directly affected their money market the world over.

Now what is a money market?

Money Market is actually an inter-bank market where banks borrow and lend money among themselves to meet short-term need for funds. Banks usually never hold the exact amount of cash that they need to disburse as credit. The ‘inter-bank’ market performs this critical role of bringing cash-surplus and cash-deficit banks together and lubricates the process of credit delivery to companies (for working capital and capacity creation) and consumers (for buying cars, white goods etc). As the housing loan crisis intensified, banks grew increasingly suspicious about each other’s solvency and ability to honour commitments. The inter-bank market shrank as a result and this began to hurt the flow of funds to the ‘real’ economy. Panic begets panic and as the loan market went into a tailspin, it sucked other markets into its centrifuge.

The liquidity crunch in the banks has resulted in a tight situation where it has become extremely difficult even for top companies to take loans for their needs. A sense of disbelief and extreme precaution is prevailing in the banking sectors. The global investment community has become extremely risk-averse. They are pulling out of assets that are even remotely considered risky and buying things traditionally considered safe-gold, government bonds and bank deposits (in banks that are still considered solvent).

As such this financial crisis is the culmination of the above mentioned problems in the global banking system. Inter-bank markets across the world have frozen over. The meltdown in stock markets across the world is a victim of this contagion.

Governments and central banks (like Fed in US) are trying every trick in the book to stabilize the markets. They have pumped hundreds of billions of dollars into their money markets to try and unfreeze their inter-bank and credit markets. Large financial entities have been nationalized. The US government has set aside $700 billion to buy the ‘toxic’ assets like CDOs that sparked off the crisis. Central banks have got together to co-ordinate cuts in interest rates. None of this has stabilized the global markets so far. However, it is hoped that proper monitoring and controlling of the money market will eventually control the situation.

How it has affected India?

In the age of globalization, no country can remains isolated from the fluctuations of world economy. Heavy losses suffered by major International Banks is going to affect all countries of the world as these financial institutes have their investment interest in almost all countries.

As of now India is facing heat on three grounds: (1) Our Share Markets are falling everyday, (2) Rupee is weakening against dollars and (3) Our banks are facing severe crash crunch resulting in shortage of liquidity in the market.

Actually all the above three problems are interconnected and have their roots in the above-mentioned global crisis.

For the last two years, our stock market was touching new heights thanks to heavy investments by Foreign Institutional Investors (FIIs). However, when the parent companies of these investors (based mainly in US and Europe) found themselves in a severe credit crunch as a result of sub-prime mess, the only option left with these investors was to withdraw their money from Indian Stock Markets to meet liabilities at home. FIIs were the main buyers of Indian Stocks and their exit from the market is certain to wreak havoc in the market.   FIIs who were on a buying spree last year, are now in the mood of selling their stocks in India. As a result our Share Markets are touching new lows everyday.

Since, the money, which FIIs get after selling their stocks, needs to be converted into dollars before they can sent it home, the demands for dollars has suddenly increased. As more and more FIIs are buying dollars, the rupee is loosing its strength against dollar. As long as demands for dollars remain high, the rupee will keep loosing its strength against dollar.

The current financial crisis has also started directly affecting Indian Industries. For the past few years, the two most preferred method of raising money by the companies were Stock Markets and external borrowings on low interest rates. Stock Markets are bleeding everyday and it is not possible to raise money there. Regarding external borrowing from world markets, this option has also become difficult.

In the last fiscal year alone, India borrowed $29 billion from foreign lenders and got $34 billion of foreign direct investment. A global recession has hurt external demand. International lenders who have become extremely risk aversive can limit access to international capital. If that happens, both India’s financial markets and the real economy will be hurt in the process. Suddenly, the 9% growth target does not seem that ‘doable’ any more; we should be happy to clock 7% this fiscal year and the next.

However, one positive point in favor of India is the fact that Indian Banks are more or less secured from the ill-effects of sub-prime mess. A glance at Indian banks’ balance sheets would show that their exposure to complex instruments like CDOs is almost nil. In India, still the major banking operations are in the hands of Public Sector Banks who exercise extreme cautions in disbursing loans to needy people/companies. As a result, we are not likely to see a repeat of sub-prime crisis in India. Though there have been a presence of big US/European Banks in India and even some Indian banks (like ICICI) have some foreign subsidiary with stake in the sub-prime losses, there presence is miniscule as compare to the overall size of Indian banking industry. So at least on this major front we need not worry much.

However, a global depression is likely to result in a fall in demand of all types of consumer goods. In 2007-08, India sold 13.5% of its goods to foreign buyers. A fall in demand is likely to affect the growth rate this year. Our export may get affected badly.

A negative atmosphere, shortage of cash, fall in demands, reducing growth rate and uncertainties in the market are some of the most visible aspects of an economic depression. What started as a small matter of sub-prime loan defaulters has now become a subject of global discussion and has engulfed the global economy scenario.

Greed of some…woes of billions

If you think about this with a cool mind, you will find that the underlying cause of this depression is the greed of those who failed to anticipate the consequence of their actions. On a more ideological front, it is high time to have a rethink on the very idea of free markets and capitalism. I think the time has come to evolve a capitalism where everything works under a broad regulatory framework and we do not see a repeat of this condition where greed of some people can affect the lives of billions.

So here concludes my attempt to explain the current economic crisis which has started to affect the lives of all of us. The above explanation is very simple and by no means it presents an accurate picture (i.e the one that includes all the micro/macro factors)  of the crisis. However, I hope that it must have given you a broad idea of the reasons behind current economic depression. Feel free to post your comments on this issue.

Update : Owing to the overhelming questions/suggestions of the readers, I have written a second article in this series : Reasons for Global Recession – Part Two. This article tries to explain the reason for easy credit situation in US that leads to the emergence of sub-prime mess. It also offers comments on why curbing the recession is taking longer than expected. Read it here.

Every dark cloud has a silver lining

A US depression is on anvil. Though not confirmed but in a hush hush way it is becoming the talk of the town. According to many experts the Depression in US Economy has already arrived. The mess of subprime mortgage has become somewhat unmanageable and is slowly taking the US towards an economic recession. The federal Bank of America is trying hard to keep this situation under control. The recent reduction in interest rates and announcement of relief package are some of the steps taken in this direction.

However, this US depression is affecting the world economy in a big way. US investors, in fear of a deep recession, want to liquefy their assets and, therefore, are making heavy selling of their stocks. This has affected the stock markets of entire Globe. The Indian stock market is no exception. During the last 10 days, it experienced it’s biggest one day loss and gain. The market is very uncertain and nobody knows exactly where it will head in the days to come. Owing to such fluctuations in the market, millions of small investors in India have lost their money and sleep.

No matter how bad the situation appears as of now, I want to tell something which is quite obvious yet very few people are talking about it: the positive effect of this US depression for India. Let us understand this in some more detail.

First positive effect of this Depression is that the Indian stock market is again returning to it’s core fundamentals. For the last few months the market was soaring at such a high pace that it defied any business logic or commonsense. People were not ready to listen the sane advice and everybody was ready to ride this bandwagon of a super bullish environment. The pace in the market was primarily due to heavy buying from big investors (FIIs to be precise). However, this buying was so huge that an imaginary atmosphere of ever increasing Sensex was developed.

It is common knowledge that Share prices should be determined on the basis of the performance of the companies in their respective fields. However, the stocks of these companies were telling an entirely different stories. The stocks which used to sell on a price range of 15 to 20 Price by Earning ratio (P/E) were being sold for a P/E ratio of 45-50 . This price was simply an inflated price with no solid logic behind it. However, people were in a rush to buy shares even on these price on the belief that the prices will soar more and they will be able to make some serious cash.

The recent fall in the stock market has helped in cooling off the heated share prices and has brought a common sense in the market. The prices have come down to their realistic value and this in fact is a very positive development for the Indian economy. The fall in prices has given a buying opportunity to those investors who wanted to buy stocks of companies but could not do so owing to their exorbitant prices. In the long run, this price correction will greatly help the Indian companies as only long term and serious investors will be able to get the real profit. The short term and non-serious investors will slowly move away and a stability will come in the market.

The second positive development of this US depression will come in the form of a fall in the global prices of Oil. A US depression clearly means a fall in the demand of oil. The lowering of demand will result in the fall of oil prices. This fall in oil prices will help India and China the most as these economies are having the fastest growth rate and a decrease in oil prices will keep deflation in control .The end result : more demand and more production.

There is one scenario, however, which may spoil the party. If the OPEC countries (the group of Oil exporters countries) decide to lower their oil production in view of fall in demand from America, there will again be a increase in the global oil prices. It is, however, believed that OPEC can be persuaded for not doing this.

The third and final benefit from a US depression for India is that soon we may see a fall in the interest rate here. As US federal bank is regularly lowering it’s interest rates to control the economy, the investment in US is becoming less and less attractive. As a result, the big investors are heading towards other profitable markets like India. This has resulted into a big dollar inflow into India making our currency rupee very strong which is pinching the exporters. Further, as interest rates are at their peak at the moment, this, along with a strong rupee has made many Indian companies postpone their investment plans for future. This situation, however, cannot last for long as doing so will hamper the growth rate. The only solution available is to decrease the interest rate which will make lending easy and spur the growth in many sectors. This will increase the inflow of money into the economy and give a boost to the demands. Further, a lower interest rate will also put a break on dollar inflow as the investment in India will become less profitable. Though, today, the Reserve Bank of India has not announced any decrease in interest rate and has asked the Banks to take a decision on their own, it is certain that sooner or later a reduction in interest rate is inevitable. Since India’s economy is not heavily dependent on US Economy and it has it’s own huge domestic market, a lower interest will give a boost to the production and help the economy.

So these were the three main benefits of a US depression for India. Though I know that depression is not good for any country and it comes with lots of pain and disappointment, in my opinion, this depression will not be a dreaded one for the US too. For the first time in the history of a depression in America, the world has a counterbalance in the economies of India and China which will keep driving the world’s economic engine even in tried and tested times.

The world is fast becoming a global village. We all have become interconnected with each others. What happens to one affects the other. There was never such a time in the history when we get to see so direct and interconnected effects of world’s events as we are witnessing today. Let us hope that we all get through the difficult times successfully Amen !