There are times when u compare Indian economy and US economy, people make fun of you because the former is not even comparable with the latter. But now-a-days, we see in media, internet and TV, everywhere, people talking and comparing the two economies. So, I think this is the apt time to talk about the economies of the world. So what’s really going on? Let’s try to understand all these things in a simple way without getting into the technical part.
Markets are registering their biggest losses in the last 60 years of stock market history. The Indian stock markets are falling 20% on two days and recovering 10% in single day. We don’t know whether it’s the end of fall or the start of fall but the fall of the market is in line with its global peers.
We all know that the Indian economy is the second largest growing economy at 8.5-9% after china. China grows at 10% rate. Our government is trying to achieve such a growth rate but there are various factors that are a great hindrance to our growth. This high growth of 8.5% and the incapability to achieve the 10% growth rate can be both attributed to the same reason-the democratic form of government.
In a democratic form like ours, it’s difficult to take a huge decision and implement it as soon as possible. Because there are many laws and procedures to be followed before taking a decision such as increasing foreign funds limits etc. But we should remember that because of such procedures, we are growing at a steady rate. Even though our growth can look slow at times, it is steady and strong.
The china on the other hand follows a communist form of government. But it allows more foreign funds than ours. They are more liberal as far as industrialization is concerned. Since there is always one-party ruling, their rules and policies don’t change often whereas in India, it changes regularly for every 5 years depending on the government. So we can say that the Chinese growth is rapid but at the same time under the scrutiny of the government always.
Apart from these two economies, if we take a look at the US economy, it grows at the rate of mere 2-3% every year. But since the last few years they have been struggling to maintain that growth and now that the analysts are feeling that they may be a recession also. If US slow down, it will in one way or other affect other economies.This is because we are more dependent on US as far as IT sector is concerned.Also, 2-3% of our GDP is dependent on US. As dollar comes down, it may affect export-oriented sectors such as textile industry. But India won’t see a recession for another 10 years that’s for sure. The long-term growth story of the Indian economy is still on even though there may be a minor turbulence in the stock markets.
Till now, many of the villages don’t have water, current or roads. Today, we have 50% plus illiterate people. The government is keen on improving the above said factors. We lack the Chinese mainly in infrastructure and power whereas we are way ahead of them in IT and IT enabled-services. So, even though IT based sector may take a slight beating as long as it is dependent on US markets. So, we can say that even though the US economy slows down, the funds and investors are interested in investing in India because of the safe market regulations and the stability of our economy.
Extending this to the stock market point of view, we can say that foreign players are very much restricted and regulated in Chinese markets than our markets. All these 4 years, there has been growth in all stock markets. (Indian stocks gave 47% return on average, Chinese stocks at 70%, US gave no significant returns at all!!).However,even taking a pessimistic point of view , we can say that pockets of value are always there and it is upto the investor to pick them.
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This article was written in the mid of January when the markets are trading at 18000-19000 range.
