India and the emerging markets the solution to the Credit Crunch?

In the context of the recession and ‘credit crunch’ I think people would have been amazed had they been in Gujarat yesterday and the day before, nearly 20 000 people attended the opening of the Vibrant Gujarat Global Investor’s summit 2009. India’s captains of industry and its top business leaders were present for the summit as well as representatives from governments around the world.

In the session I chaired, ‘Infrastructure with a focus on Special Investment Regions’ there was a stampede to sign MOU’s, it was an amazing site, to see so much confidence in India’s particularly Gujarat’s growth. Companies from all round the world were falling on each other to sign, Japan, Germany, the US, the UK, China, Korea and South Africa among many others.

The PM of Kenya and the Vice President of Uganda along with the numerous ministers from many African and Asian countries who were present for the summit seemed almost dazed at first by the response from business were desperate to learn from the experience.

The summit is the perfect antidote to all the news floating around about investors to nervous to invest. It was a hugely encouraging experience, India; especially Gujarat is the place to be. I have no doubt the solution to the credit crunch lies in emerging markets like India where there is still growth and the opportunities for business, as demonstrated over the last couple of days, is huge.

3 further ideas to help the UK through the current economic storm

Purchasing the surplus housing stock of troubled home builders
The Government could consider purchasing surplus stock, particularly at fire-sale prices, from companies such as McCarthy & Stone and Crest Nicholson (both of which are restructuring and have roughly 5,000 unsold housing units) the government would be able to make an immediate impact on social housing, unclog the balance sheet of troubled homebuilders and allow construction activity to resume

The creation of a public fund for innovation
Also, establishing a Fund to support innovation in manufacturing and export oriented industries could incentivise R&D units and university based research to focus on creating goods and services for export. The UK economy will need to position itself for a changing economic landscape – one in which consumption and consumer spending will become less reliable engines of growth and external markets will become as much a destination for export as they were a source of goods and services imports

Long term tax breaks for export oriented and manufacturing sectors
Finally, the promotion of the UK (through tax credits and regulatory reform targeted to foreign entities) as a destination for cash-rich companies in China, India and a Middle East as a base for high-end manufacturing and export oriented industry.

Extraordinary solutions to extraordinary times, my ideas to help the UK economy through the financial crisis

Speaking to the CBI in November this year, Gordon Brown said “All over the world, policy makers are leaving behind the solutions of yesterday and recognising that extraordinary times require extraordinary actions”. While I expect the most effective solutions to the current crisis will be monetary and regulatory in nature, I propose a couple of ‘out the box’ ideas that I believe will help the most vulnerable in society while hopefully reducing the impact of oncoming recession.

The creation of community banks
Small businesses account for more than half of Britain’s GDP and employ more than 13 million people across the country. I believe the government should promote the formation of strategically placed community banks to help ensure a fair supply of credit to small businesses. These banks could be run by healthy banks (HSBC, Santander) in equity partnerships with government who can target them at specific geographic areas ensuring the most vulnerable groups get the help they need.

A Government sponsored asset manager
I think it would be sensible to establish a Government Sponsored Asset Manager whose sole mandate would be to bid and purchase illiquid and distressed assets from banks. Many assets on bank balance sheets are mispriced owing to the near failure of trust in the interbank lending market. An independent entity that is a ‘buyer of last resort’ – one that has a mandate to analyse and make last bids on those assets – would allow troubled banks to improve solvency. The creation of such an entity should be considered within the context of regulatory reform of financial markets.

There will be more suggestions soon....