Asian Development Bank study says, there is further room for interest rate cut is available in India and need to diversify their economies to reduce the impact of global financial crisis and larger Gov’t deficits.
According to the new study by the ADB, the Global financial markets losses have reached $50 trillion (Rs.2.5 Quadrillion or Rs.2.5 followed by 14 zeroes) mark. Losses on financial assets in Developing Asia in 2008 totaled $9.8 trillion. The total measure of losses includes reduction in value in Equity and bond markets including those backed by mortgages and other assets and depriciation of many currencies against the US Dollar, however it does not includes the derivative products like Credit Default Swaps (CDS). According to data available with the VMW, the total outstanding of principle amount of CDS equals to $50 trillion alone, and it will further instensify the total losses. Study shows the recovery can only now be contemplate for the late 2009 or early 2010. Data provide close connection between the economy and markets, therefore, the emerging economies are in mid of the crisis and the next 12 to 18 months are very crucial.
The good news is that, the South Asia (including Indian Subcontinent – India, Sri Lanka, Afghanistan, Pakistan, Bangladesh, Nepal, Bhutan and Maldives) Economies can weather the current Economic downturn by taking both short term and long term measures to stimulate the domestic demand and their economies.
The number of short term measures have been taken to cushion the impact of this crisis. In India, the Government has already announced the three Economic Stimulus Packages to stimulate the economy. Particularly in India and Sri Lanka, there is enough room available for more rate cuts. It means, the expectations from the central bank to brace the economy is still alive. Government could also consider incentives to encourage overseas workers to remit money home, they should also discuss currency swap arrangements and other measures to keep their financial systems stable.
However, in the long term, South Asian nations need to reduce their fiscal deficits, diversify their economies, step up infrastructure investment and boost intra-regional trade to take up the slack of lower demand from G7 nations.
Source: Asian Development Bank and VMW.