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Thursday, November 20, 2008

Real power comes from inside

It all started with the sub-prime crisis but the major effects are seen now. Bear Stearns, Freddie, Fannie, Lehman, Merrill Lynch, AIG, it seems that there is a competition going on who will be the biggest loser. The recent turmoil on the Wall Street has started to reverberate strongly here in India too which puts us to the million dollar question “Will similar fate await Indian finance firms too?” .With FIIs pulling out more and more money from the Indian markets, dollars appreciating steeply against the rupee and liquidity crunch apparently visible in the market, whole investment scenario is looking gloomy at least in the short-term.

So how can we prevent an impending domestic financial crisis? With our habit of being over-dependent on a number of external factors such as US for virtually everything, I am not sure if we can avert such a situation but at least can mitigate the effects to some extent. Agree, being a developing nation, India need the support of Uncle to help grow and transform into a developed state and indeed the US, more often than not, lends a much needed hand but this overdependence also backfires. Take for example, the Indian IT outsourcing industry heavily relies on the US with percentage revenue coming from the US being more than 70%. Now if the new political regime in America agrees on cutting on this very crucial area from India’s perspective (which presidential nominee Barack Obama has promised to Americans if he comes to power), just imagine the kind of ripple effect it would create in India. We, as a country, have managed to show brightly on the world map primarily because of the phenomenal IT growth in the last few years and any blow to this sector would mean a serious blow to India's economy as a whole. Similarly heavy dependence on imported crude oil means any change in the price or policy by OPEC would have a direct affect on India.

So instead of sitting idle and wishing that the current situation would improve because our fundamentals are strong, India should look internally for alternative options. For example, there is huge potential in the domestic market and increased penetration there could prove to be a boon for IT companies that would reduce their external dependency. Similarly building more renewable energy sources such as Solar power, Hydro power and Wind Power is the need of the hour.

The bottom line is “Look Inside First”. Until and unless, India grows and strengthens internally, it will always remain vulnerable externally which will lay major obstacles in its quest to become the next world power. Facebook