Many of us in our childhood participated in arguments about who is stronger-an elephant or a whale? This children's game has become relevant for indologists in connection with the current global financial and economic crisis. Will a large and sufficiently strong Indian elephant economy be able to withstand the global crisis-whale?

Now the answer to this question is as vague as in a comic children's argument. There are no reliable statistics yet. India has very reliable and fairly quickly published economic reports, but the crisis has been growing so rapidly since the end of last autumn that even the most up-to-date statistics cannot keep up with it. Output figures and cost-based macroeconomic data are particularly lagging behind. Now "eye-to-eye" estimates and unreliable calculations based on economic models are quite widespread, which, of course, strongly depend on late data.

However, analyzing a crisis after it's over is tantamount to a pathologist dissecting the deceased. The diagnosis is necessary at the beginning of the disease.

In economics, it can be presented in the form of an analysis of current trends and possible scenarios for their development.

THE DAY BEFORE

The Indian economy grew at a rate of 5-6% per year in the 1990s and early 2000s. At a relatively low rate of agricultural development, the service sector became the leader, while the growth rate of industrial production roughly corresponded to the average growth rate of gross domestic product (GDP). At the same time, GDP per capita grew steadily. Economic growth has accelerated in recent years. India's GDP grew by 9.8% in 2006 and 9.3%ⁱⁿ 2007.1 In terms of its size, India ranked 5th in the world after the United States, Japan, China and Germany.

India's economy grew faster than neighboring Pakistan and Bangladesh, outperformed South Korea, and only slightly lagged behind China, roughly matching the region's GDP growth rate.

These macroeconomic and social achievements were largely the result of the country's economic reform since 1991.The goal of the reform was to change the economic model in favor of expanding freedom for the market sector and reducing the impact of the state on economic processes. The reform tools included easing restrictions on large capital to invest in key sectors of the economy that were previously reserved for the public sector, as well as allowing large firms to enter industries that were previously reserved for small-scale industries that create jobs. In other words, the state protected small businesses from competition.

The reform also included liberalizing banking regulation, allowing Indian and foreign banks to expand their businesses, reducing taxes and import duties, removing quantitative restrictions on imports, allowing non-residents to enter the stock market, easing price regulation, and reducing the social burden on public sector enterprises.²

As a result of economic reform, India has developed a modern stock market. In terms of the number of companies whose shares are listed on the stock exchange, India is more than 10 times ahead of Russia, about 5 times ahead of China and 1.5 times ahead of the UK. Market capitalization at the end of 2007 exceeded the Russian level, lagging behind the level of capitalization of the Chinese and British markets by more than two times, although the main indicator for exchanges - the volume of trade - in India is small. It is almost two times lower than the Russian one, almost six times lower than the Chinese one, and more than 10 times lower than the UK ³. In 2005 - 2007, the Indian stock market experienced significant growth - corporate shares and bonds increased in price 3 times (in China-4 times).

In 2007, Forbes magazine included 34 Indian firms in the list of two thousand of the world's largest companies. The top ten Indian firms in this list include Oil and Natural Gas Corporation (239th place in the overall list), Reliance Industries (258), State Bank of India (326), Indian Oil Corporation (399), NTPC Ltd (494), ICICI Bank (536), Steel Authority of India Ltd (800), TATA Consultancy Services (1047), TATA Steel (1128), Infosys (1130th)⁴. In this list, the role of fuel and energy companies (two oil companies and one electric power company-NTPC Ltd) is very important.-

Table

Annual GDP growth in India and some other Asian countries (%)

Compiled by: "The IMF on the state of the economy of developing Asian countries" / / Bulletin of Foreign Commercial Information (BIKI), N130, 13.11.2008, p.4.

It also features the metallurgy industry and the modern information industry (Infosys). With a numerical preponderance of private firms in terms of economic potential, state-owned ones dominate.

After the lifting of restrictions on foreign investment in 2005/2006*, Indian firms began to invest heavily in other countries. If in 2006/2007 the volume of foreign direct investment in the Indian economy amounted to $ 16.4 billion, in addition to $ 9 billion of portfolio capital investments (in securities), during the same period, Indian firms invested 43 billion rubles abroad. in the oil and gas industry, mining, metallurgy, pharmaceuticals, telecommunications and other industries ⁵. Thus, in recent years, the Indian economy has been intensively involved in the processes of globalization with all their advantages and risks.

India is one of the largest foreign investors in Russia, with a 20% stake in the Sakhalin-1 oil and gas project. Indian investments in this project amounted to about 3 billion rubles. United States dollars.

It should be noted that India constantly imports more than it exports, so its trade balance is negative. The shortfall is covered by foreign aid, remittances from Indians working abroad, and exports of services ranging from tourism to offshore programming and outsourcing of business services. For example, Indian firms maintain accounting records for American and English firms, using email to send data and documents. For foreigners, this is cheaper: Indians have the necessary qualifications and speak good English, earning less for their work than in developed countries.

In general, as a result of economic reforms, India has formed, as expected, a promising model of economic growth. In a 2007 study of the future of the Indian market, the McKinsey Global Institute, a consulting firm, predicted that by 2025 the number of middle-class people in India will grow to 500 million, and the Indian domestic market will become the fifth in the world, compared to ¹² in 2007.6

THE FIRST BLOWS OF THE GLOBAL CRISIS

Before and at the very beginning of the global crisis, India's economic growth projections were very high. GDP was expected to grow by 7.9% in 2008 and ^6.9%in 2009.7

The financial crisis that began in August 2007 did not affect the Indian economy at first, but in September-October 2008 it reached it as well.

The collapse of a number of American financial firms and banks, which previously seemed to be the unshakable foundations of the global financial system, led to a total distrust of financial institutions and markets. Previously considered safe assets in the form of securities have sharply depreciated. This led to a contraction of the money market, and money became more expensive. In addition, if earlier a firm that needed a loan could provide the bank with its existing securities as collateral, now this opportunity has significantly decreased, as they have become devalued.

The modern economy cannot exist without credit. Many real sector firms have shut down their operations in these circumstances, waiting for better times. Ordinary consumers began to adhere to the same tactic, reducing purchases. Many were simply forced to do this, having lost their jobs.

Stock prices of a number of companies on the stock market have fallen. For example, at the beginning of December 2008, the shares of Indian Oil and Infosys, already mentioned as leaders, fell in price by half against the maximum values for the year, and TATA Steel-by 4 times ⁸. In 2008, the capitalization of the Indian stock market declined by more than 50%. The rupiah's exchange rate declined against all major currencies - the US dollar, British pound sterling, euro and yen.

In April-October 2008, exports increased by 23.7% compared to the corresponding period of the previous year, and imports-by 36.2%. But already in October 2008, exports were 12.1% lower than in October 2007, while imports were 10.6% higher. Trading volume-

* The fiscal year in India starts in April.

the profit margin increased by more than one and a half times ⁹. In the third quarter of 2008, the amount of taxes paid by Indian firms decreased by 22% ^.10

According to a survey conducted by Ipsos Global Public Affairs, a research company that surveys consumer confidence in 22 countries, in November 2008, compared to April 2007, the positive assessment of the situation in India decreased from 88% to 65%, in China-from 90% to 46%, and in Russia-from 65% to 52%. This is the first time that Indians have been in a crisis situation since the start of reforms in 1991. Before that, the country was more closed in economic terms, and it managed to avoid alternating strong ups and downs of the market environment caused by external factors. ¹¹

A decline in demand causes a reduction in the labor force. For example, a 40% reduction in demand resulted in the layoff of 100,000 Indian gemstone mining and processing workers. The sector's turnover was about $ 50 billion, and more than 1.3 million workers and their families depend on it12.

The Government of India has developed a plan to support the national economy in the global crisis. 200 billion rubles have been allocated to stabilize the situation. This is approximately equal to 4 billion US dollars. Budget expenditures will be increased by this amount. To increase consumer demand, the tax burden on individuals is reduced by 4%. Assistance is also provided to national businesses, and the Reserve Bank of India-to the financial system, in particular, by reducing its interest rate, which makes credit more affordable for commercial banks.¹³ According to Indian experts, this measure may lead to a significant reduction in loan rates for individuals, and this encourages consumer spending.

In the same direction, the decline in inflation at the end of 2008 is almost twofold-to 6.6% compared to the maximum value of 12.9% in the summer months. Prices fell for both consumer goods and investment goods (metal, pipes, cement)¹⁴.

The situation in India was somewhat complicated even before the beginning of the acute stage of the global crisis in the fall of 2008 by the budget deficit.

Reserve Bank of India Chairman Duvuri Subarao said in early December 2008 that India's economic growth forecasts for the next two years may be lowered due to a sharp decline in exports and domestic consumption15.

FUTURE FORECASTS

It seems that the short-term and long-term consequences of the global financial crisis for India should be considered separately.

As for the last quarter of 2008 and the first quarter of 2009, it is obvious that the slowdown in economic growth may be very significant, but this will not affect the annual indicators of 2008 very much. The growth over the previous months was so significant that the annual figures will be only 2 - 3% below the trend of recent years. In the first quarter of 2009, which will be the end of the financial year for Indian entrepreneurs, the situation with the macroeconomic policy of the authorities will be clarified, and financial reports of firms will be prepared that take into account new asset prices. Banks will adapt to the new situation in the money market.

After that, the dynamics of both domestic and global demand, as well as the attractiveness of the investment climate in India in comparison with other countries, will play a significant role.

Two fundamentally different scenarios are possible: a prolonged recession and vice versa-its rapid overcoming and even economic growth due to the use of India's national advantages. In their pure form, these scenarios are not feasible, they only describe two multidirectional trends, the interaction of which will determine the state of the country's economy.

The prolonged downturn may be caused by a combination of low demand within India due to insufficient government capacity to stimulate the domestic economy and a significant decline in global demand for Indian export goods and services. In this case, private businesses will probably be more interested in exporting capital than in investing domestically, and foreign investors will also prefer other countries.

Successful use of India's national advantages can occur if domestic consumption in the country continues to grow, and the decline in global demand is not very deep. Then India can become an attractive place for foreign investment, which will give an additional boost to its development despite the crisis.

The government's ability to regulate economic processes is limited, since the impact of market factors is very significant in the current global crisis. The uncertainty is objective.

There has been an imbalance in a large number of economic mechanisms around the world, and in an open economy, it is simply impossible to regulate many processes. Collecting information and developing optimal solutions based on it alone will not help matters. Nevertheless, it can be productive to adapt to the emerging trends correctly in order to correct the negative aspects and use the positive ones.

COMPETITION WILL ESCALATE

What factors can influence the development of the situation in the country's economy?

The fact that significant amounts of Indian capital have been invested in major projects abroad in recent years may contribute to the decline in the country, and in order to achieve a return on them, additional investment will have to be made.

In India's favor, a deep economic downturn in developed countries may work. The return on investment there may be lower than in India, and the process of exporting capital is likely to be replaced by its return to their homeland: Indian firms working for export and exporting capital will feel a taste for investment in their home country.

It is obvious that the global crisis will result in increased international competition. India has a well-developed offshore programming sector, but it depends primarily on the state of the US economy. Initially, there may be a decline, but then customers will probably return to India, since the services of qualified Indian programmers, as noted above, are cheaper than in the West. At the same time, the needs of the financial sector in countries that consume Indian software can play a big role. The fact is that foreign banks and financial firms were large customers of complex software products that require a user-friendly interface, that is, easy for non-professional users to use. It is in this segment that Indian programmers have no equal, while in software complexes with complex mathematical apparatus they are ahead of the Chinese.

India has a well-developed industry for the production of generic drugs - medicines that are released after the expiration of patents obtained by firms that developed drugs. Competitors are already becoming more active in this market. India will face increasing competition for their exports.

A big positive role should be played by falling oil prices: India imports 3/4 of the oil consumed in the country. At the end of 2008, the price of petroleum products on the domestic market in India fell so much that a liter of gasoline and diesel fuel became no more expensive than bottled drinking water, if taxes were deducted from the retail price of petroleum products. ¹⁶

If the downward trend in oil prices continues, transportation costs will decrease, which will be a positive impulse for the entire economy. There will be prospects for the growth of the petrochemical industry. Household fuel costs will decrease, which will have a positive impact on family budgets, especially in rural areas, where approximately 70% of the country's population lives.

India has great growth potential in the domestic market. For example, even an industry such as the footwear industry, which is export-oriented in most developing countries, in India largely works for the domestic market. Out of 2 billion Only about 100 million pairs of shoes that are produced annually in India are exported.¹⁷

The traditional sector of the Indian economy (small and artisanal production), of course, does not directly depend on the global situation. However, it also needs an influx of external monetary resources: after all, about a quarter of the country's population lives below the poverty line, that is, about 250 million people. In the event of a favorable economic environment, an increase in demand for certain products of this sector can provide the necessary inflow of funds. In any economic situation, government benefits are an important component of the welfare of this sector. But the state's ability to reduce tax revenues is severely limited.

At the same time, the most advanced internationalizing sector of the Indian economy will suffer - the enterprises and firms that have made the most progress on the path of economic reforms, started working for export and gained access to capital markets. For a number of firms and people working in this sector, the crisis can be a tragedy. So, in the fall after the collapse of stock markets in the world, several suicides of Indian stockbrokers followed, who suffered large financial losses and were unable to repay the loans they took.

Overall, India's macroeconomic performance is likely to look much better than that of many other countries, and consequently, its chances of successfully overcoming the current global crisis are higher.

So far, the elephant looks stronger than the whale.

¹ The IMF on the state of the economy of developing Asian countries / / Bulletin of Foreign Commercial Information (BIKI), N 130, 13.11.2008, p.4.

^{Malyarov O. V.} 2 Ekonomicheskaya reforma v Indii [Economic Reform in India], Moscow, Institute of Oriental Studies of the Russian Academy of Sciences, 2007, pp. 15-20.

³ Oasis of the future / / Expert, 2008, No. 21, p. 47.

⁴ Indian Economy // Russian-Indian Forum - http://www.rus-ind.ru/eco-nomic

⁵ Ibid.

^{Zavadsky M.} 6 Be fruitful and consume / / Expert. 2008, N 16, p. 51.

⁷. O sostoyanie i perspektivakh razvitiya mirovoi ekonomiki [The IMF on the state and prospects of the world economy development]. BIKI, No. 138, 02.12.2008, p. 4.

⁸ Other International Stocks. India // Financial Times, 05.12.2008, p. 30.

⁹ India's Foreign Trade: October, 2008. Department of Commerce, Government of India - http://commerce.nic.in.tradestats/in-diatrade/

¹⁰ Economics. India: reducing corporate tax payments. 26.12.2008 - http://www. masterforex.org/ru/ news/business/

¹¹ Consumer Crisis / / RBC Daily. 24.12.2008.

¹² Gems and jewellery industry lays off 1000000 people. 26.12.2008 - http://ti-mesofindia.indiatimes.com/Business/

¹³ India unveils rescue plan for its economy - http://lenta.ru/news/2008/12/08/stimulus/

¹⁴ Inflation halves to 6.61% from peak of 12.91. 26.12.2008 - http://timesofindia.indiati-mes.com/Business/

¹⁵ Economics. India: RBI Chairman's comments. 10.12.2008 - http://fo-rextimes.ru/news

¹⁶ Believe it or not: Oil cheaper than packaged water. 26.12.2008 - http://ti-mesofindia.indiatimes.com/Business/India/

¹⁷ Razvitie kozhevenno-obuvnogo sektora Indii [Development of the leather and footwear sector in India]. BIKI, 23.09.2008, p. 7.

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