India needs to have a re-look at its global economic policy. It requires courage to do so, given the many tough decisions that are involved. Will the new Government post-May 2014 be able to rise to the challengeIJ
The world has started de-globalising. The US has taken the lead. India needs to correct its economic policies and de-couple, according to the United Nations’ latest report on ‘World Economic Situation and Prospects’. The UN report, as analysed by Mr Nagesh Kumar, chief economist, UN-ESCAP and director, ESCAP South and South West Asia, is a testimony of reversal of the economic policies adapted in the post-Soviet era in early 1990s.
Though the report says that the global economy would grow at three per cent, it underlines the point that 2013 experienced subdued growth for a second year. There are many factors and risks that could derail the world economy far beyond the report’s projections, The WESP says. It adds that the risks associated with the bumpy exit from the quantitative easing programmes by the US Federal Reserve, threaten world economy.
The positives, it noted last year too, are the end of protracted recession in the Eurozone and “somewhat strengthening of growth” in the US. The other positive is stated to be some large emerging economies, including India and China, managed to backstop the deceleration they experienced in the past two years.
The pessimism in the report, however, is wide. Despite a better world projection at 4.7 per cent growth for trade, employment situation will remain bleak. The WESP warns that international capital flows to emerging economies “are expected to be more volatile”. It is a soft warning on foreign direct investment and short-term portfolio investments by FIIs, which has become virtual bedrock of Indian Government’s economic policies. Would the Government change the tack on economyIJ
The US fiscal tightening is a severe warning. During the past two year, US President Barack Obama has been hinting at more indigenisation — less imports and more exports. The Eurozone too follows the same principles. This is to hit Indian and other economies, dependent on export-oriented growth. They would have to look for new growth models.
India has done well in giving more solar energy-related contracts to indigenous organisations, leading the US to lodge complaint with the World Trade Organisation. This is natural. But India has also to be tough with the WTO. It cannot be allowed to undermine the country’s sovereignty to benefit a few Western powers.
The WESP expressing concern over the lowest Indian growth in two decades is apprehensive over high current account deficit and fiscal deficits. Growth has decelerated to 4.8 per cent due to weak household consumption, high inflation, sluggish investment and large capital outflows in 2013. It says India is virtually on a reverse path, that Mr Obama is adopting, with less exports and more imports. The suggestion is simple. It wants India to reorient its policies.
The capital outflows resulted in a further depreciation of the Indian rupee in 2013. The weakness of the rupee contributed to upward pressures on prices of imported goods, which added to inflation. But this has helped the exports as prices in international market slumped. It forecasts a moderate growth to 5.3 per cent in 2014 for India.
Among developing regions, only Africa is experiencing some kind of growth. The GDP is expected to expand by 4.7 per cent in 2014 against four per cent now. Africa is growing because of growth on investment in infrastructure, trade and investment ties with emerging economies and improvements in economic governance and management.
So far as India is concerned, the experts note that financialisation of commodity market, futures trading, cartelisation and hoarding are creating unprecedented price inflation of all goods, services and commodities. It also notes that higher FDI by international retailers are acting against the Indian consumers, who have to pay through their nose. It has affected their savings and caused utmost hardships. In a carefully drafted report, it has noted the failure of Government mechanism to control it despite the powers that they have.
The working class is the worst sufferer and overall large Indian population is finding it difficult to survive. In a previous report, UN Conference for Trade and Development had also noted these reasons for dismal performance of Indian economy.
Indirectly calling upon India to correct its path, the WESP warns that the tapering of US Fed’s bond buying programme could result in significant capital outflows, requiring further monetary tightening in India.
In addition, the WESP has come down heavily on subsidy cuts on food and energy. Depreciation of the rupee is yet another factor for concern. These would lead to higher consumer price inflation in 2014 apart from slowing down household spending and domestic demand. Besides, it leaves with little room for monetary easing. The suggestion for India is to have a re-look at its globalised economic policy. It certainly requires courage to do. Will the new Government post-May 2014 be able to take India on an independent courseIJ