Monday, November 3, 2008

What next for India? - Nirvikar Singh

The real concern should be the following two years, when a global recession will bite deeply. But short-term challenges remain. Here are some challenges and suggested policy responses—the theme being, fix only the actual problems and tackle them closest to the source.

Solvency

Providing ample liquidity avoids creating artificial insolvencies, but some institutions may genuinely have to go to the wall if their assets, properly valued, do not cover liabilities. One area of vulnerability is the real estate sector.

Other sectors where investment has been aggressive may also see weaker firms face problems. India has no proper bankruptcy laws. A potential crisis may be an opportunity to create some streamlined procedures for restructuring.

There will be secondary effects on the banking sector if real estate and other loans start going bad, and loosening monetary policy may provide a cushion. Essentially, RBI has to try to engineer as soft a landing as possible from the real estate bubble. To read more, please, visit - livemint.com

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