Economic
Highlights
New Delhi, 23 January
2015
EU, Chinese Trends
INDIA MUST BE CAUTIOUS
By
Shivaji Sarkar
It is a big economic exercise.
People know of the World Economic Forum meet at Davos in Switzerland. What
they don’t know is the quantitative easing (QE) of Bank of England, European
Union and rate cut of People’s Bank of China (PBC) that has happened in matter
of days. Even Japan
is considering one.
One common thread in these exercises
is the realisation that the world economy may be in peril without increasing
jobs. It cites the QE by the US,
which has stimulated job growth to around 3.5 lakh. In short, it means the central
bank buys bonds from investors such as banks or pension funds using money it
has printed or created electronically. This increases money supply.
Growth in the Eurozone - the 19 Euro
using countries – has slowed down in recent months. Some of these are in
recession. Europe is also facing the spectre
of deflation, when prices fall. Its inflation fell below zero in December. The World
Bank (WB) says it might cause severe contraction of the economy as people would
stay away from the market expecting further price fall.
The WB opinion is faulted. It does
not take into account the growing profits of large corporate. The corporate cartels
have increased European commodity prices beyond the affordable levels. They
have also cut on jobs further accelerating the problem. So the solution has to
be there. The WB has been advocating QE as they had done for the US two years
back. The Bank of England had taken to it. The EU has done it. It means European
Central bank would buy Euro 50 billion bonds a month till 2016.
It is a clever World Bank ploy to
maintain corporate cash books happy by putting pressure on the governments, who
finance the supposed corporate losses by enticing them to spend more through
pumping money by the government. The new government money is stated to allow
more investment and growth.
It is a classic global method of
nationalizing losses and privatizing profits.
Europe, however,
has added one quality to its programme. It has not taken the route of lowering
interest rates – a US
favourite. It argues lower interest rates encourage people or companies to
spend money rather than save. Higher interest rates encourage savings and add
resilience to the economy.
So will the Eurozone revive? German
chancellor Angela Merkel does not believe in it and did not support it. Greece, deep in
debt, has put conditions and is mulling going back to its own currency. In
reality, Greece
has cut its government spending. It is not easy solution. The UK says the
Bank of England has helped its economy despite job cuts and rising inflation –
a prescription it has adopted for growth.
Yes, Euro 50 billion a month or a
trillion Euro in about a year is a lot of money to boost the economy. If it
does it would mean a lot for India
too. The EU has opened up avenues for textile and fruit imports from India. It is to
be seen how much it benefits India.
There are apprehensions that the QE
would be used by the large corporate to corner most of the funds to be released
by the EU. It is doubtful that it would increase quality jobs. Despite about
recent 3.5 lakh additional jobs in the US, most have been termed of poor
quality. It means the jobs have lower wages and most are either casual or
temporary in nature.
The EU QE may have its impact on India. It is
likely to open up avenues for Indian export. It is expected that over the next
three years India’s
exports is likely to rise with incremental demand from these countries.
The recent Chinese move to
accelerate its economy through domestic demand is also likely to benefit India. As China stresses
more on its domestic economy, its wages and other costs are likely to rise.
This might make Chinese exports expensive. It may open up avenues for India.
The 0.4 per cent PCB rate cut comes
in the wake of recent slowdown to five-year low growth of 7.3 per cent. Many
analysts think a key motivation was the recent sharp fall in the value of
Japenese yen, which impacts Chinese exports. Simultaneously ECB President Mario
Draghi stated he would continue to “step up the pressure” and increase its efforts to stimulate the
struggling economy.
The moves may have further impact on
oil prices. The British Petroleum says that the present oil price slump would
continue for three years. But if the economic battle in Asia and Europe
intensifies and Russia,
which also faces a severe economic crunch, joins it, it might lead to a larger
demand. The oil price may not remain that low.
India has to remain cautious. Its NITI
Ayog would be left with difficult questions. It has to prescribe independent
ways to steer the economy. It has to suggest ways to cushion the economy from
either an eastern or western onslaught. It may also have to mull how to generate
domestic demand, how not to cut interest rates and still push the growth.
India has an advantage. It has the
largest workforce. Its disadvantage is jobs have not grown. The 2008 slowdown
and consequent stimulus – corporate incentive – have exemplified that it only
adds to corporate profits as it has done in the US
and Europe. If it does not give stimulus,
corporate globally carry out a malicious campaign to blackmail the government.
It is a tough balancing act.
The NDA government faces tough
situation. But it has to learn from the US,
Europe and China
that people have to be provided jobs. It is not possible for either the
government or the corporate to do that. It has to look for how individual
entrepreneurship could be incentivized. The farms have to be integrated to
create the quality of life. Rate cuts or QE are not long-term solutions.
Europe, China and the US have
exhibited it. India
needs to set its course. ---INFA
(Copyright,
India News and Feature Alliance)
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