GLOBAL ORGANIZATION OF PEOPLE
INDIAN ORIGIN
(GOPIO), INC.
P.O. Box 1413, Stamford, CT 06904, USA
Tel: 203/329-8010, Fax: 203/322-2233
E-mail: gopio@optonline.net,
Web: www.gopio.net
In March this year, Mr. Lakshman Achuthan and Dr.
Anirvan Banerji startled the business world by announcing that the US had
entered a period of recession, after a decade of the longest and most sustained
growth in its history. Late November, recession was officially announced by the
US government. Achuthan and Banerji were speakers at the Holiday party
organized by the Global Organization of People of Indian Origin (GOPIO) and
Network of Indian Professionals (NetIP NY) held at the Maharaja Restaurant in
New York on December 14th.
In his wlecome adress, GOPIO President, Dr. Abraham
Abraham said that GOPIO has over a dozen chapters now and hopes to increase
that number to 35 by end of 2002. Net IP (NY) President Mr. Suresh Peddu said
that his organization would work with organizations such as GOPIO to extend
services to the community. The chief guest for the evening was Mr. R.K. Singh,
Consul for Commerce at the Indian Consulate who provided brief overviews of the
current Indian economy. He stated that since India had followed a different
path, it had escaped the severe recessions, which had occurred in the Asian
tiger economies.
GOPIO New York coordinator Mr Lal Motwani was
recognized for the distinguished service award he had received recently from
the New York Managerial Employees Association. Following these formalities, the
main speakers, the lucid and erudite duo Achuthan and Dr. Banerji of the
Economic Cycles Research Institute (ECRI) took the center stage who spoke on
the current recession in the US economy with special reference to IT bust.
Achuthan is the managing director and Dr. Banerji
the director of research of ECRI.
Achuthan has appeared on CNN, the Lou Dobbs show and on NBC, talking
about economics and current money matters. Dr Banerji, an IIT, IISc and
Columbia alumnus, is the Director of Research at ECRI. When all the economic
pundits predicted, confidently, that the cycles of recession were over and the
US could, perhaps, expect only a rising and sustainable, healthy business
scene, these two gentlemen predicted that this was, alas, not so.
Achuthan explained that there has been a long
tradition of cyclical recessions. The National Bureau of Economic Research was
their starting point for research and they worked at The Center for
International Business Cycles, now called ECRI. A recession is a pronounced,
pervasive and persistent decline in output, income, employment and sales. A two
quarter GDP decline is neither a necessary nor a sufficient condition for a
recession. Finding the turning points with a fair degree of accuracy is
difficult and this was where their expertise came in. This is easier to predict
in a free market economy than in a controlled economy where various other
factors may come in to play. He explained that a linear forecast has its
limitations because the turning point is often bypassed and the recession not
detected early. This is what the institute works on,
anticipating and finding these crucial turning points because they help
business and individuals plan their finances and business operations better,
with a fuller understanding of the trends and climate they can expect. He
explained leading, coinciding and lagging tendencies. Leading indications
anticipate the business cycle, coincidental indicators move in step with it
while lagging ones follow the cycle. When the consensus forecast the economy
was still booming, they had missed some of these indications. The two showed us
their simplified models and indicated the parameters of domestic trade, (i.e.
manufacture, construction and services) and the foreign trade (i.e. exports and
imports). Inflation and employment were two major indices. ECRI looks at a dozen
leading indices and various business cycles of all the G7, emerging markets
and, of course, the Indian economy.
The trouble began when people started thinking this
was a different era, business cycles with dramatic boom or bust tendencies were
a thing of the past. People started predicting that downturns could be avoided
and the business cycles were perhaps finally being tamed, if not avoided. These
were errors in judgment. Everybody touted IT, "We are such a productive
economy", was the cry. The consequences were that stock prices bubbled up
and there was overbuilding of capacity. The rallying cry was, "Buy when
the prices are low". Almost all of US capital was IT related. Slowdowns
caused corporate
profits to fall and this led to a fall in investment. The effect of the hike in
the world's interest rates was felt. IT suppliers felt these cycles the most,
as most of their equipment is cyclical.
"How ironic that the producers of the equipment
that was to have eliminated the inventory cycle are themselves its foremost
victims," said Stephen Cecchetti on Aug 22 this year. The I of IT, the
critical information was what was not noticed.
When asked for the IT outlook for India, they said
that recession will go, time and effort will do this. They said that the
stronger the downturn, perhaps the sharper will be the upturn. Low cost
producers of goods could be the beneficiaries and pointed to Dell, which is
gaining a larger part of the market share. When asked about these offers of
large interest free loans now available, they said this was to keep the
consumer going, to help him buy and stimulate companies.
Dr. Banerji said taming the cycle could not be done.
How could negative growth and recession be removed? If the rate of growth is
already high, the dips could be, at best, reduced. The trend towards recession
is the same but the dips are not felt as much since the volatility is low. What
people thought had happened when smaller dips occurred: they simply assumed
that they had disappeared rather than note that they were low. But they had
made a major leap of faith while the facts indicated otherwise. The more
optimistic followers of Keynes felt booms and busts could be eliminated.
The answer in his judgment, was no, they could not be
eliminated. Alan Greenspan was not fooled and knew the dip would come. The
Goldilocks theory of the porridge being just right was, alas, a dream. The
porridge could get too hot as the Japanese expansion of '99 showed. However,
because inventory cycles are more controlled, volatility was lower.
The nineties were characterized by a synchronous
recession in first, the English speaking countries and then, in the Far Eastern
markets. The Japanese economy, the world's second largest expanded, import
prices started rising, interest rates increased. OPEC saw a demand for oil
going up. Then there was a sharp slowdown. People expect patterns to continue
and there is a lag in recognition of changes. Japan was a case, a persistent
lag of recognition on an international scale. The IT sector blinded people to
the impact of economic slowdown. It grew because it was a young industry, the
error lay in thinking that this sector was immune and that set up the fall.
Dr. Banerji stated that there was fundamentally, a
good growth period for IT in India. IT is a cyclical industry and if these
cycles were understood by Indian companies, they would be more prepared for
them, rather than get nasty surprises. Indian IT has its own niche markets and
is strong, the growth is strong and not negative. It is still small, focused
and caters to niche markets. Companies should pay attention to trends and
understand when a slowdown might be expected and not forget that these
slowdowns do occur. People need to learn these lessons!
When asked if recovery was in the offing, they said
that recovery trends are there but not yet persistent, pronounced or pervasive,
not yet strong enough. This current period could last as long as June or July
and with enough indications, this could be predicted more exactly. They
encouraged everyone to visit their site: www.businesscycle.com as it is updated every Friday.
There was some discussion of luck as a factor and
whether this was a frivolous index. The men said it was important to understand
that sometimes luck did play a part and to attribute success to it rather than
to skills or judgment, which were not really there. The diagnosis is enormously
different.
All these variables can be refined further. While
this information may not make anyone rich and predict turns with total
accuracy, this information is important and "helps you sleep a little
better"! For business, it means understanding when a slump may be expected
and forewarned is, of course, forearmed. They also said that since today 80% of
the people here are in services, the same dramatic dips may not occur.
Achuthan and Dr. Banerji are talented and clear
speakers who made it easy for even non-economists to understand their reasoning
and their points and how they worked at predicting business trends. "Now,
if they could guide us, as simply and as elegantly, to making more money as
well, " said one attendee.
Photographs (Photo Credit: Malika Rajan)
Lakhman Achuthan, Managing Director of ECRI speaking at GOPIO dinner meeting
Lakshman Achuthan and Dr. Anirwan Banerji at the GOPIO dinner meeting.
Consul for Commerce Raj K. Singh speaking at the GOPIO program