China leads crash, need for cushion

Wall Street has put out its worst ever performance in 2016 as the China-led crash wiped off $2.5 trillion wealth from the global stock market in the first few days of the new year. The way global markets have gone into jitters following panic in the Chinese stocks clearly shows how much influence it holds on rest of the world, being the second largest economy. Also, devaluation of Yuan for the third time in five months has rattled the
global investors who have started taking Chinese meltdown rather seriously. For all these years of heady growth of double digit, China had become a major consumer of global commodity while the Dragon economy turned itself into a major supply source for the manufactured products for the global stores. No wonder, the fresh bout of panic from China has brought the prices of major commodities, tumbling further down with crude oil breaching an 11-year low.

Being a major importer of crude oil, every drop in Brent should be a great news for India. But then, as experts point out, too much fall in commodity prices tell a different story and we have reached a stage where it has started hurting several key sectors like metals, upstream and downstream oil firms. Plus, further depreciation of the Chinese currency would make things worse for Indian exporters who are battling a major demand slowdown in the global markets. So, when Finance Ministry officials put up a brave face stating that India is well-cushioned and quote a rosy World Bank outlook, they must realise Dalal Street cannot remain insulated from rest of the world. The government’s ambitious disinvestment programme would come crashing down if investors stay off equities.

If at all, the cushioning can come from some resolute reforms and pushing the public investment. Renewed efforts by the government to reach out to the Congress for passage of the GST Bill are laudable while the principal Opposition would see its stature move up by a few notches if it comes on board. Continuing reforms with speed are no more a matter of choice as global headwinds can sweep off any fragile recovery that is visible so far. But for a 70 per cent crash in the crude prices in the last one year, Finance Minister Arun Jaitley would have found himself in trouble as bulk of the gains have been claimed by the government. Looking ahead, it would be anything but a smooth sailing for most of the world. Lowering the guard would be quite risky. India is no exception.