Is Indian economy safe from financial crisis?

Whole world is facing problem because of the financial crisis started from the Wall Street. Many of the big and once successful banks and financial institutions have gone bankrupt or have to take huge capital support from the national governments. But in India we are made to believe that there is no problem in the market. Though we would like to believe this sort of reports and statements but it is hard to believe that this is true.

For last many months, world is facing the problem of layoffs and recessions but we were denying there was any problem. Jet airways fired over thousand employees who were on probation but the company had to take some of them back because of the government pressure in the election year. No one will say that there was pressure from the government on the Jet Airways but if we look at the huge pending bills for the fuel with the state run companies and the relaxation that the government gave in delayed payment of the bills, it is more than obvious that there was pressure on the company or some sort of hidden agreement to hire some of them back. Now the Prime minister says that the country is suffering from the recession in the world economy but the Indian banks are safe.

This kind of hiding the facts and telling white lie is the biggest concern and it is hard to believe that the Indian banks are safe as claimed by the Prime minister and the finance minister. There is no direct indication that the Indian banks had huge exposure to the subprime problem in the USA but I am sure they will find it difficult to get capital from international market and this will build huge pressure on the liquidity of the banks. Reserve Bank of India is trying its best and injecting more liquidity in the market through reducing the CRR rates etc. But the moral of the customers is too low and low confidence might result in higher rate for the interbank interest rates. This is happening and has been reported in some reports in the Indian media.

Many of the young people working in high paying sectors in India will see large layoffs or recruitment will freeze. This young generation that has taken loans for home, bikes and cars will find it difficult to pay back as per the original plan. If they start defaulting for any reason, Indian banks will have no other option but to declare that they are also facing financial crisis.

Till now nothing bad has happened and we can just hope that it remains so and we don’t face the reality of integrated and open economy started in 1991.