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October 19, 2008

"Distant financial thunder"

In an article for the Economic Times, Samir Kumar Barua, Director of IIM Ahmedabad, has an interesting analysis on the impact of the unfolding global financial crisis on India.

Ashani Sanket, a novel by Bibhutibhushan Banerjee, was the basis of a film by Satyajit Ray. The English version of the film is titled Distant Thunder. The story deals with the famine that caused death of millions in undivided Bengal in the early nineteen forties. The simple villagers are unable to fathom as to why despite plentiful rains and a good harvest, rice becomes scarce and its price rises rapidly to make it unaffordable. The Second World War being fought in the distant land has disrupted their cloistered life without their being able to fight back.

What is happening to the financial world today in the emerging economies such as India is similar to the plot of the novel. The world of finance in the west has been hit by a tsunami, and the waves generated are not only drowning the financial sector but even the real economy of the emerging nations. What has taken most by surprise is the ferocity and swiftness of the impact.

...There is, therefore, still a chance that we may escape with much lighter punishment from here on. If the economy continues to chug along even at a reduced 6% growth rate over the next one year, we may yet see the markets recover by the third quarter of the 2009. That appears to be the best case scenario. The role of the Reserve Bank will be crucial in the recovery process.

Arun Natarajan is the Founder & CEO of Venture Intelligence, the leading provider of information and networking services to the private equity and venture capital ecosystem in India. View free samples of Venture Intelligence newsletters and reports.