The current financial crisis is giving us an excellent opportunity to test the hypothesis on which emerging markets and to what extent are decoupled from the developed economies. Anyday I would have preferred any other non destructive way of testing this hypothesis! The pain is palpable through out the different emerging markets and each is responding in its own way as discussed in the podcast published in Knowledge@Wharton.
The national governments of India , China and Korea are among others who are downward revising the GDP growth targets by a couple of points. The emerging market stock markets have generously declined from their all high time highs of 2007/2008. The big businesses are facing credit crunch and the media is sincerely reporting on how the big firms are either downsizing or freezing recruitment.
Not much is being talked about how the financial crisis is affecting the low income population . In a flat world the financial crisis is expected to trickle down to the major cities of emerging markets like Shanghai , Mumbai and Bangalore. How are lives being affected in the rural economy ? Is it still localised and the linkages to the global financial and economic systems are not that developed to have a devasting effect ?
The answer lies in between. The slow down of the overall country economy will have a trickle down effect on the rural growth and the lives of the people. The high rates of inflation from the beginning of this year has already started robbing them of of the little surplus some of them could possibly generate.
To get a better understanding of how they will be affected we may like to segment them on the basis of primary occupation : Agricultural land Owners , Landless agricultural labourers , Rural small business owners and migratory industrial and construction workers. In countries where there are little agricultural exports ( example India ) and domestic demand is strong enough the segments depending on that will see limited downside. In India approx 65 % of the population of 1.1 billion depend on the agricultural sector as primary source of income. In Brazil the story may take a different turn as exports of commodities is a significant foreign exchange earner and the commodities market is melting now.
The segment that is getting affected and will get affected are the migratory workers who are working in industries and seasonal migratory workers in construction industry. The cost cutting measures of industries leading to termination of contract workers and the slow down in the real esate and infrastructure sector may lead to significant job loss.The remittances to hinterland will stop and many will have to go back to their rural villages. This provides an opportunity to the citizen sector and the government to step in . They can use this an opportunity to reskill the population being affected by the industrial slowdown and position them appropriately to upcoming job opportunities as emerging market economies will continue to grow at an reasonable pace. It is heartening to see that the Indian government is pushing hard now to implement the ambitious skill development program with a budgetary outlay of INR 15000 crore / USD 300 million ( Exchange Rate 1USD = 50 INR). The target for this program will be labour force entering for the first time ( 13 million) , the work force in the organised sector ( 26 million ) and the unorganised sector ( 435 million).
