E.C.O.N.O.M.Y

The Prime engine which directly impounds the money circulation in and out of a nation seems poised for an overhauling in India and breakdown in few countries.

The fascinating point is that true to the analogy of a Car engine, economy engine does not run at the same/increasing rate (GDP growth rate) always. It is dependent on desired functioning of other engine components like the piston, piston rings, cylinder block, lubricating oil, engine mounting etc. which have a knack of breaking when overstressed(the creation of economic bubble). The other components being the money value (inflation/deflation), corporate earnings, per capita income, foreign exchange, political stability, regulations, tax regiments and government policies in an economy.

Now, as a result of breakdown of overstressed components of engine, the engine now slowly starts degrading in its output (the slowdown). Because of the inefficiency of the engine, the other components of the car like fuel efficiency and tyre life seems to go down. The equivalents in economic terms are the money market, capital market, commodity markets which gets affected.

As we all know, any vehicle is due for service at regular intervals in order to cleanse the clogged parts and overhaul inefficient functioning of parts. Once this is done, the engine will be back at its best; infact biking geeks will accept me in saying that the engine gets 'well set' after running for few thousand kilometers and after couple of services. So, our economy which has got overheated had its own problems of worn-out parts. However, ours being a new vehicle (Emerging markets) might not require in-depth servicing and can almost be back to normal efficiency of working. In contrast, the old vehicles(Old economies) which had seen many service check-ups in its lifetime might need complete replacement of critical parts which might take a longer time.

The soaring oil price, commodity price, huge inflation, high interest rates, dropping corporate revenues, per capita income are no doubt slowing/can further slow the economic growth rate. After an overhaul of all these above parts, the GDP engine might be kicking back.

However, what desired to be seen is how quickly does a driver(of Emerging markets) recognize that his components are degrading and needs a servicing for his vehicle? Are we a bit slow on that?

P.S: There has been clear discrimination of 'economic cycle time' above. These are deep cycles and i believe the changes talked above from one line to other line may take years.