Last Updated : 31 October 2008 at 08:55 IST

Commodity prices fall a blessing: Dr K P Kannan

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Commodity Online
THIRUVANANTHAPURAM (KERALA): The recent fall in commodity prices will turn out to be a blessing especially if public investments in infrastructure is stepped up and growth prospects are maintained, according to Dr K P Kannan, economist and Member, National Commission for Enterprises in the Unorganised Sector and former Director of Centre for Development Studies.

“We need to focus on employment generation sectors such as SMEs and link them with bigger enterprises for technology upgradation, cluster development and growth poles,” Dr Kannan said in a lecture organized by Asian School of Business.

India’s export basket is diversified and not dependent on USA alone that constitute 10 percent of the country’s exports.” The fear of impact on real economy is being shown up in sectors which are linked to export markets, international business and financial services thereby affecting employment."

Major refocus should be on expanding the domestic market where the informal sector constitutes 30 percent of GDP but only gets 5% of the credit. The country also needs to tackle inequality created during the neo-liberal regime that gave primacy to financial sector ignoring the real sector growth.

Citing the fact that unrestricted and volatile FII investments led to the sensex crash, Dr Kannan said that its impact may not be great as only 5% of the population is exposed to equity markets. However, those who invested in gold, fixed deposits and post office accounts are still better off.

With private sector confidence at a low, better performing public sector units should be allowed to invest in such sectors as power, transport, communication, heavy engineering among others.

On the positive side, India’s banking system is quite insulated, has comfortable foreign exchange reserves. The challenge is to harness this increased money flow for investment in infrastructure.

Dr Kannan said that capitalism has many lives. The financial capitalism spawned by the neo-liberal agenda is dead. What is now required is a Nehruvian middle path and reforming the mixed economy would have reduced India’s vulnerability. “History would force us to balance between state and market , public and private with varying degrees of competition and co-operation.