Its all over for US Style

Capitalism
- S. Gurumurthy

Deepali Chauhan
Jyotsna Pawar
Vinayakam Murugan

XMBA - 32
 Index
• Introduction to Capitalism & Socialism
• Gurumurthy kehte hai (The Author says)-I…
• Gurumurthy kehte hai(The Author says)-II…
• Stop Press!!!
• The 1991 crisis
• Where are we today – the good
• Where are we today – the bad
• Summary
Introduction to Capitalism & Socialism

• Capitalism is the economic system based on private or corporate

ownership of production and distribution of goods. It can also be
explained as an economic system which is based on “survival of the
fittest”
• Anglo-Saxon Capitalism is a capitalist model in which levels of
regulation and taxes are low, and government provides relatively
fewer services.
• Continental Capitalism (also known as Rhenish Capitalism) is
known to be the more equitable, efficient, and less violent one.
• Socialism is an economic system in which the production and
distribution of goods are controlled substantially by the government
Gurumurthy Kehte Hai - I

• India shifted its economic loyalties to the US after its earlier idol ,the
Soviet Union, collapsed in the 90s.
• Capitalism was the answer to all those who were seeking an alternative to
Socialism at that point.
• If socialism was the villain then, US Style Capitalism is the culprit now.
• US has been discredited amongst friends and foes due to the subprime
crisis.
• US Govt provided a fiscal and monetary stimulus of atleast $12.8 trillion ,
which is 85% of their 2008 GDP of $14.8 trillion. Their GDP is expected to
shrink by 1.2 percent .
• In contrast , the German Govt provided a fiscal and monetary stimulus of
only $682 billion , which is 18% of their 2008 GDP of $3.7 billion. Their
GDP is expected to shrink by 1.7 percent which is comparable with the US
• The savings investment imbalance seems to be root cause of the crisis
• Is India making a mistake of following the US?
Gurumurthy Kehte Hain - II

• Indians have a tendency to save

money.
• The growth in spend is always less
than the rise in income
• US households have little inclination
for saving.
• Even if they do, they prefer risky
instruments like stocks.
• In countries like Japan & India, Rate
cuts didn’t attract more spending. In
contrast the savings increased at the
usual rate.
• Indian household behavior is unlike
the US so our policies should also be
different
Stop Press !!!

• Let’s have a reality check

• Is the author biased ?

• Is he right in blaming the govt for following US inspired policies?

• Let’s take a look at the turn of events which literally ,pushed us to the
path of liberalization
1991 Crisis

• Precipitated by the Gulf War and large Fiscal deficits over a period of time,
India was in serious economic trouble

• These deficits had to be met by borrowings, the internal debt of the

government rose from 35% of GDP at the end of 1980-81 to 53% of the
GDP at the end of 1990-91.

• The Forex reserves had slumped to about 3 weeks worth of essential

imports.

• Dire situations call for dire solutions. India was forced to keep Gold as
collateral to secure the required aid.

• India was forced by the IMF and other countries providing aid to liberalise
the economy and introduce reforms

• This task was entrusted to the then Finance Minister Manmohan Singh.
 Where we are today – the good

• India is now regarded as one of growing economies , along with China

• Current Forex reserves stand at $285 bn as on 20th Nov 2009 (Source
www.rbi.org.in)
• It is one of the most attractive destinations for FDI
• India was one of the countries which was minimally impacted by the
subprime crisis, primarily due to the strong regulations by RBI.

Graph Source : Vasudev Sir’s PPT on Chapter 2, Slide 12

 Where we are today – the bad

• Politicians ignored the primary and secondary sectors

• Prominence was given only to the golden egg laying sector – Services.

• Almost all states have insufficient power supply

• 82% of households lack access to sanitation

• 200 million do not have access to potable water

• 1 doctor for every 10,000 Indians (548 in case of U.S.)

• Public spending on health care only at 4% of GDP

Source : Vasudev Sir’s PPT on Social Indicators, Chapter 2, Slide 34

 Summary

• Unfair to blame any particular model

• Primary failure in implementation rather
than principles
• Horses for courses
THANK YOU