Economic recession won't budge till 2010: experts

Ahmedabad, Nov 24: The current economic recession in India will continue at least till 2010, averred experts.

Addressing the special session on the global crisis and its effects on the Indian economy at the 'IIM-A Confluence' organised by Indian Institute of Management here on Saturday last, the experts said India's current recession is comparable to the economic condition of US and Europe a year ago. The crisis may further deepen next year.

The speakers were Lord Meghnad Desai, Professor Emeritus of London School of Economics, and N Ramchandran, Country Head (India) of Morgan Stanley. The distinguished speakers spoke about the causes, effects and the possible aftermath of the present global crisis.

Lord Desai said ''There are two crises that are prevalent now.

One is the crisis in the financial markets and the other is the downturn in the real output cycle.'' He said the boom that had preceded the present bust was unique in many ways. The developing economies for the first time were active beneficiaries of the boom. The aid, being supplanted by Foreign Institutional Investors and Foreign Direct Investments, flows into these emerging economies, he pointed out.

Lord Desai remarked that it was the longest boom period in the living history.

Moving on to the present financial crisis he said, ''Financial innovations which were responsible for the boom are the causes of the downturn that followed.

He said the credit crunch in the global economy was affecting the real output cycle in a bad way.

Lord Desai also argued that though it may be difficult, the regulators and policymakers must understand that the cycles in the real economies are inevitable. He said the turmoil in the financial markets is because of the exceedingly complex instruments whose risk implications were not understood by the top management of the various banks.

Lord Desai stressed the need to change the governance of international financial bodies such as the IMF and the World Bank.

Explaining the rationale behind this need, he said ''Eastern countries are now the primary lenders for the global economy, so it is imperative that they have a greater say in how these institutions are run.'' Commenting upon the monetary and the fiscal policy that is being used to tackle the crisis, Lord Desai pointed out that there was no alternative plan to control the crisis. He concluded by saying ''In the worst case scenario, the governments will have to act as a direct lender to businesses and individuals.'' Mr Ramchandran said the current crisis were primarily caused by a credit crunch, which is felt all across the world.

He said ''There are four major reasons for the credit crunch.

They are lax regulatory oversight, leverage, lack of transparency and marked to market method of accounting.'' He said the contagion which had its roots in the sub-prime sector, had spread to the entire credit market across the world.

Speaking about the steps being taken to fight the crisis, he said the move from monetary measures to fiscal measures to fight the crisis, was unprecedented. He felt that the current financial and regulatory framework must be overhauled taking into consideration the needs and views of the people, government and the business.