‘Irrational pessimism is intensifying slowdown’

MUMBAI: Chairman of the Economic Advisory Council (EAC) to the prime minister Suresh Tendulkar believes ���irrational pessimism��� on the part of bankers, investors, and consumers in India is intensifying the economic slowdown. ���While we cannot wish away the crisis, this is the danger that is happening in India. We have to confront this element,��� Mr Tendulkar said here on Friday. The EAC outlook for 2009-10 projects growth at 7.1% which could be weak in the first half but peak up in the later.

The EAC chairman was delivering a keynote address on ���Economic Outlook and Business Prospects for 2009-10��� at Maharashtra Economic Development Council. Mr Tendulkar attributed this ���irrational pessimism��� partly to the ���import of the psychology of gloom and doom���.

���Information about what is happening in the advanced countries is travelling much faster than earlier. In those countries, the crisis is really very serious. But this import of psychology seems to be affecting bankers, investors, and consumers alike in India,��� Mr Tendulkar said. However, he added that the EAC was not belittling the impact of crisis on those who had lost jobs. ���But even the number of jobs being lost has to be considered in relative terms. It is not happening on the scale of unemployment in the advanced countries,��� he said.

Justifying the optimistic 7.1% growth, the EAC chairman listed out factors that still favoured the Indian economy even amidst the global gloom. He said the crisis had not affected rural demand as much as it had impacted the urban consumption. ���Last five years saw the agriculture sector grow at nearly 5% per annum which is an indication that the rural market has been growing fast. Weather wise, the next fiscal also promises a good farm season,��� he said.

Second, the monetary and fiscal measures taken by the RBI and the stimulus packages would start showing results in the first quarter of the following fiscal. Similarly, the lower interest rate regime would help leverage urban consumption and spur investment. Mr Tendulkar said a greater public spending on infrastructure, aimed primarily at employment-generation, would put programmes on track and help other sectors as well.

He also pointed out that unlike the crisis in 1991, India had a comfortable balance of payment and foreign exchange position today and current account deficit was also relatively not serious. Among other favourable factors, Mr Tendulkar cited the competitiveness of the Indian enterprise and a relatively modest exposure of banks in India to ���toxic��� instruments.