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World Economic Forum – Update from New Delhi

November 18, 2008

“Be fearful, but don’t panic”.

I always like short and simple conclusions that I can understand.  These words were spoken by a prominent economist in India after a thoughtful two-hour discussion of the current economic meltdown and its implications in India. Some excerpts are below.

The tsunami that had its origins in the U.S. financial sector has had an unprecedented global impact.  But unlike in the U.S. where the financial sector brought down the “real goods” economy, the entry of the malaise into India was different. The banks in India continue to be in reasonable shape with their non-performing loans under control. The main issue was the rapid switch off of foreign direct investments into India, which after having been significantly positive in the past few years, has gone into negative territory in second half of 2008.

The crisis has hit the real goods sector first, especially small and medium sized enterprises. The Indian rupee has depreciated rapidly against the U.S. dollar in the past few weeks. For a private firm in India, the first order of business seems to be survival in the next six months. Then the strong companies left standing may have an opportunity to pursue strategic acquisitions, laying the foundations for long term success. 

We are at the edge of a precipice, but there seems to be a way out or at least a way to limit the damage that we understand today.

As an eternal optimist, I am keeping my fingers crossed……

 

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