Third Day of IIMA Confluence 2008 Dedicated to Current Financial Crisis

Third Day of IIMA Confluence 2008 Dedicated to Current Financial Crisis

Mrs. Sharma stated, "The recent events have proved that local markets in Asia are not insulated from those in the West, and what we are seeing currently is probably an over correction given that the Indian banking system in particular doesn’t have much exposure to

toxic debts." Looking for positives in the current scenario, she said that the crisis is forcing governments and policy-makers to think of measures to revive growth. She felt that the turnaround will happen in about 4-6 quarters from now.

Prof. Ram Mohan sought to take the discussion forward by finding the link between the financial market crisis and the real economy. Commenting on this, Lord Desai said that the financial sector has penetrated a lot deeper into the real economy in the last 20 years. He felt that 'banks are not behaving like banks' by not lending among themselves. "The real economy is always in equilibrium and the financial markets follow the efficient market hypothesis but there is no interaction between the two," he concluded. Prof Varma stated that the financial markets were like a messenger that indicated the deflation of the bubble in the real economy. Mr. Rao felt that there was a delayed response to the current crisis since the initial stages were characterized by a feeling of denial. However, Prof. Varma cautioned the governments, commenting that the governments form only 20-25% of the GDP and cannot carry an entire economy on their shoulders. He expressed the need for pre-emptive recapitalization of banks but hinted that it might be affected by political interregnum in the near future.

Commenting on the expected growth rate in the economy, Mrs. Sharma opined that it might be 5.5 to 6.0% in 2009-10 and will increase to about 8.0% the following year. Though Mr. Rao concurred with Mrs. Sharma, Prof. Varma had a bleak outlook stating, "...for 2009-10, 5% would be good news." However, Lord Desai predicted a trajectory of low growth and felt that government interference with regard to corporate decisions could adversely affect investments.

Prof. T. T. Rammohan finally concluded the event by drawing attention to the grim outlook of the panelists.

In continuation of the various socially laudable efforts that IIM Ahmedabad has prided itself on, 55 units of blood were also collected for Thalassemia Patients at Confluence 2008.

Concluded.

* Contributed by -
Ravi Shankar,
IIMA Confluence 2008,
Indian Institute of Management, Ahmedabad.

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