The current global financial crisis has shaken the world economy. For the first time in history, all countries have become engulfed by the same economic crisis. No country has escaped unscathed from the ongoing predicament. The greatest impact has been felt by the global labor market. According to a recent analysis by the International Labor organization included in its annual Global Employment Trends Report released on Jan. 28 of this year, “Global unemployment in 2009 could increase over the 2007 rate by a range of 18 million to 30 million workers, and more than 50 million will likely face a deteriorating situation”.

Another projection of the report states that if the economic downturn is not halted soon, more than 200 million workers, mostly in developing economies, could be pushed into extreme poverty in the near future. According to ILO director-general Juan Somavia, there is a strong need to take a more decisive and coordinated effort to avert a looming global social recession. International Monetary Fund forecasts from November 2008, stated that the global unemployment rate would rise to 6.1 percent in 2009 compared to 5.7 percent in 2007, resulting in an increase in the number of unemployed worldwide by 18 million people over the 2007 total.

All is Not Lost

Such doom and gloom forecasts have some comparing the current situation to the Great Depression of 1929. However, the reality of our current situation may not be as bad as it is widely being made out to be. For example, during the 1929 depression, unemployment reached more than 25 percent in the United States. Yet according to the U.S. Bureau of Labor Statistics, in August 2008 unemployment figures for America were at a mere 6.1 percent.

In 1929 there was widespread poverty and people struggled through the winter without food or heating. In 2008 most people enjoyed a relatively comfortable and warm winter, both in the USA and around the word. There certainly was not anything on a scale close to the extensive suffering from economic downfall as was seen by Americans in 1929. Furthermore, the U.S. Commerce Department reported the GDP growth rate for 2008 at 2.8 percent, a fairly reasonable figure given the economic realties there and abroad.

India is No Exception to the Global Labor and Unemployment Crisis

Like all developing economies, India has also been hit hard by the economic crisis. Its economy, which was growing at 9 percent a year ago, is expected to increase now by only 5-6 percent in the 2009 fiscal year. Its labor market has also been hit very hard. One of the greatest labor sectors to have been adversely affected is within the air travel industry. India’s national carrier has taken a very direct hit from the current global economic plight, leaving it unable to raise credit. Thus it is opting to defer the payment of staff salaries to cope. A more than 30,000 strong labor force is now facing the imminent danger of job loss. Last year alone, government-owned Air India incurred losses of $800 million. It is certainly not the only airline reporting massive losses. A number of private airlines, which started operating in the last five years hoping to benefit from India’s growing economy, are also now struggling with high debt and huge losses.

Another field of Indian labor which has been very seriously affected by the world’s economic woes has been the Public Relations sector. According to an Indian chamber of commerce, the Indian PR industry, which until some time ago was witnessing a massive growth rate of more than 30 per cent per annum, is now struggling to retain clients.

During the past 6 months, the financial crisis has been forcing major PR companies to cut costs, while going slowly on image building and advertisement campaigns. Against the normal 25-30 per cent growth rate the industry has been experiencing over the past five years, this year’s increase may only reach 10-15 per cent. More than 50,000 people who are dependent on this industry are now at risk of loosing their livelihood in the near future.

The Indian IT Sector has also been seriously harmed. More than 40,000 IT staff who depend on IT outsourcing jobs from the USA and Europe is said to have already lost their jobs. The IT sector, which been growing at an annual rate of more than 30 percent in recent times, is also now expected to increase at a much slower rate this year.

The Worst is Over for Indian Economy

Despite all the bad news in the labor sector, it does seem that the worst is over for the Indian economy. In a recent interaction with the news media, Prime Minister Manmohan Singh said the country had borne the global downturn “well” and called for a new world economic architecture to face this kind of global crisis in the future. On his way back from Russia after attending the first BRIC Summit, he told journalists that “…we live in times of rapid economic change when the BRIC economies are a factor of stability and growth,” The summit of Brazil, Russia, India and China held in the Russian city of Yekaterinburg on June 15, had focused on mapping out a new global financial architecture and a bigger voice for emerging economies in international financial institutions to avoid the potential impact of a future meltdown of western economies on the rest of the world.

According to analysts there are many reasons why India is doing relatively well in the face of the world’s worst economic crisis of the past 50 years. The first reason has been the sound and healthy Indian banking sector. The Indian banking system has had no direct exposure to the sub-prime mortgage assets or to the failed institutions in the United States. It also has very limited off-balance sheet activities or securitized assets. In fact, Indian banks have continued to remain safe and healthy through out the banking crisis experienced by the USA and Europe.

Indian banks have strong balance sheets, are well-capitalized and well-regulated. As a proof of its stability, not one Indian bank has had to be bailed out in the current economic aftermath. This is due in part to the long history India has to draw on of working with the public sector banks and engineering bank rescues.

The second reason for positive Indian economic sentiment is its relative dependency on the domestic market. India's recent growth has been driven predominantly by domestic consumption and investment. External demand, as measured by merchandize exports, accounts for less than 15 per cent of GDP. Thus despite the global downturn, the nation was affected much less than others because its dependence on external demand is so limited with regard to its overall GDP measurement.
Apart from these two main reasons, there is said to several structural factors in the Indian economy that have enabled it to cope successfully. For example, the reason India's financial markets have shown admirable resilience was because of the country’s very strong and stable foreign currency reserves. Its comfortable reserve position provided confidence to overseas markets. Moreover, since a large majority of Indians do not participate in equity and asset markets, the negative impact of the wealth loss effect that is plaguing the advanced economies was very minimal in India’s case.
Another factor of resiliency can be seen in how India's mandated priority sector lending, namely, institutional credit for agriculture, was unaffected by the credit squeeze. The farm loan waiver package implemented by the Government of India further insulated the agriculture sector from the world’s economic downturn. Over the years, India has built an extensive network of social safety-net programs, including the flagship rural employment guarantee program, which has protected the poor and the returning migrant workers from the extreme impact of the global crisis.

A lesson for Korea

South Korea has also borne the crisis relatively well. However, to avoid future shocks from the global financial market, it would do well to strengthen its banking system and take appropriate measures to help insulate itself from major economies. It should also help its major banks to cut the percentage of bad loans by as much as possible. Even though Korea has a very high rate of foreign reserves, it somehow is not providing confidence to foreign investors. Thus it should take proper steps to regain this confidence, enticing foreign investors to return to Korea. There is also a strong need to protect the lower strata of Korean society from future economic shocks. Toward this end, Korea should adopt more pro-labor policies to otherwise protect those who have lost jobs in the current crisis. In doing so, it shall protect and maintain the social harmony which is very essential for the continued growth of the Korean economy. Steps should also be taken to shore up the disproportionate number of youth job losses, the vast majority of which have been female. South Korea cannot expect its female population to try to make gains into the workforce while cutting them before their male counterparts when times are tough.

The Road Ahead

In June the World Bank released an update on the global crisis and the road to recovery. It stated that global output will fall by 2.9 percent this year and that global trade will see a 10 percent drop. Hans Timmer, director of the World Bank’s Development Prospects Group has said, “While the global economy is likely to begin expanding again in the second half of 2009, the recovery is expected to be subdued as global demand remains depressed, unemployment remains high, and recession-like conditions continue until 2011. To prevent further damage from a fresh wave of instability, the focus should be on financial sector reform and support for the poorest countries.” In following with this statement, it is imperative that India stays the course and also follows through on its BRIC commitments. It is clear that although the world has managed to deal with the beginning of the crisis, more work needs to be done. As one of the few nations that are still growing financially, now may be the time for India to play an even greater role on the world stage.