Monday, 26 August 2019

Slowdown Blues in India

Rating agency Crisil on Thursday lowered the gross domestic product (GDP) growth forecast by 20 basis points to 6.9% for 2019-20, citing weak monsoon and slowing global growth. This is lower than the 14-year average of 7%. Banks' credit data to some of services sectors such as tourism, hotel and restaurants, transport, computer software, shipping and commercial real estate is showing a declining trend. Data from ICRA too shows that seven out of 16 key segments contracted in the last one year. Out of these 7 segments, 4 segments related to auto industry took the worst hit.

The main culprits for such low growth are as follows:
   1. Reforms like GST & Demonetisation:
Demonetisation happened in November 2016 which led to decrease in consumption, which further caused loss of jobs leading to further decrease of demand. Then came GST in July 2017 which also affected the economy, especially in the area of exports because of delay in refunds to exporters.

       2.Tight fiscal & monetary policies:
To keep the inflation in control, RBI had kept high interest rates. Since 2016, fiscal deficit of centre & state was also running high. To keep this deficit in check, government had to decrease its spending. Both these aspects are detrimental to the growth of economy. Such high interest rates coupled with such tight fiscal policy weakened the economy.

       3.External causes:
 Too much protectionism ultimately constricts global growth. The US-China trade war has caused entire global economy to crumble. According to a Bloomberg Economics report, uncertainty over trade could lower world gross domestic product by 0.6% in 2021 compared to a no-trade-war scenario. IMF reduced its 2019 world growth forecast down to 3.2%; 0.1% point below its previous outlook.
Apart from above reason; in last 2 years of Modi’s first term, crude oil prices have also increased making economic outlook appear bleak.
Then there are uncertainties caused by the Brexit in Europe, the adverse impact of the US sanctions on Iran and Venezuela which have also added woes to the global economy.

       4. NPA woes:
Though NPA ratio started improving in NDA’s term, it is still quite high. At the dawn of 2019, while it seemed that NPA problem has been contained, the NBFC stress started building up. The liquidity crunch happening in NBFC has more ripple effects than public banks as NBFC’s are more deeply interconnected to mutual funds, banks, and corporate sector.

       5.Bad governance:
      India has a cornucopia of freebies and subsidies. Subsidies are warranted for merit goods like basic education, health and safety nets. But 6% of GDP goes to non-merit subsidies, leaving not remotely enough for other key areas. Fiscal deficits have been kept low on paper by accounting tricks. But the total public sector borrowing requirement exceeds 8% of GDP, among the highest in the world. This is one reason for high interest rates that hamper economic growth and exports.

No wonder India is no longer the 5th biggest economy in the world. Such sluggish economy has caused India to drop down to 7th place while UK & France marching ahead.

The latest budget has amplified the already slowing growth. Increase in the taxes on the super-rich has complicated the tax system without much gain in revenues. It has been one of the key reason for the flight of foreign portfolio investors in July. FIs pulled out over Rs 12,000 crore in July; the steepest outflow in 9 months.

The budget also raised the peak income tax rate to 42.7%, much higher than in many competitors. Foreign portfolio investors organised as trusts suddenly find they have to pay 42.7% tax, and are exiting, causing a crash in stock markets.

Friday, 28 June 2019

Trade War Hangs over G20

Trade war. These were the two words on the lips of world leaders on the Group of 20 gathering in Osaka, a Japanese city. On Friday, all the early statements and gossip revolved around the “trade war.”

Xi Jinping set the tone. China’s president warned about the dangers of protectionism at a meeting between the BRICS bloc of Brazil, Russia, India, China and South Africa.

“This is destroying the global trade order … This also impacts the common interests of our countries, overshadows the peace and stability worldwide,” the Chinese president said.

While he did not directly refer to the United States, his message was clear and unequivocal.

In the past year, Washington and Beijing have been embroiled in a brutal trade conflict involving tit-for-tat tariffs on imports worth hundreds of billions of dollars. Along the way, Chinese companies, such as the telecoms giant Huawei, have been dragged into the dispute, suffering punitive sanctions imposed by Washington.

After trade talks broke down last month and the technology battle intensified between the world’s two largest economies, the shockwaves rippled across the globe.

Now, G20 leaders are praying that US President Donald Trump and Xi can ease tensions when they meet face-to-face on Saturday to discuss the situation.

Although there appears little chance of an immediate deal, they will be hoping a truce can be hammered out.

Trump at least made all the right noises about trade agreements. But they did not appear to include China.

“I think we’re going to have some very big things to announce. Very big trade deal. We’re doing some very big things with India in terms of trade, in terms of manufacturing,” he said at the start of talks with Indian Prime Minister Narendra Modi.

The only real reference about the spat with Beijing came in a remark he also made to Modi.

“We actually sell Huawei many of its parts,” Trump said. “So we’re going to be discussing that and also how India fits in. And we’ll be discussing Huawei.”

Earlier this week, media reports suggested that Xi would not agree to a deal unless Washington lifted its ban on the company, which is recognized as a world leader in 5G technology and a key player in the smartphone sector.

During the opening session, Trump touched on the issue. “We must also ensure the resilience and security of our 5G networks,” he said.

French President Emmanuel Macron also called for a reset in relations between Washington and Beijing to get the “global economy” back on track.

“Today things are made neither in China nor in the United States. They are made globally,” he said.

In his opening address, Shinzo Abe, the Japanese prime minister, appealed for unity among bickering nations as well as later touching on the thorny problem of reforming the World Trade Organisation or WTO.

He urged G20 leaders to send a strong message in support of free and fair trade, warning that geopolitical tensions were rising and buffeting the “global economy.”

“With your help, I hope we will realize beautiful harmony in Osaka … rather than highlight our confrontations, let us seek out what unites us,” he said.

“Today, I want to discuss with leaders measures to further enhance momentum towards reform in WTO,” he added.

Eloquent sentiments amid the rhetoric of what is looking like a new economic Cold War between China and the US.

Monday, 9 April 2018

Spy Poisoning: Who is the villain?

The political turmoil between the British and Russia has been triggered after the incidence of poisoning Russian ex-spy Sergei Skripal (age 66) and his daughter Yulia (33) on March 4, in Britain. Britain blamed it on Russia and ordered the  23 Russian envoys of to leave the country. Russia took similar action against the UK's envoys. In the first phase, the dispute was limited to Britain and Russia. After Britain decided to leave the European Union in 2016, it was being regarded as EU's villain.The Brexit is going to be implemented in 2019 which is also one of the reasons for the unrest in Britain. US President Donald Trump's 'America First' policy also contributed to Britain's fear that they are left alone in Europe. In the presidential election of the United States, the alleged interference of Russia has led to cause many problems to President Trump.

Under such circumstances, the British Prime Minister Theresa May has the opportunity to get the support of the European Union using this issue of poisoning. The United States has also ousted most of the Russian envoys. After the efforts of the United States and Britain, 27 countries ousted more than 150 Russian envoys.

When British Prime Minister Theresa May gave Russia 24 hours deadline, Russia's Foreign Ministry reminded her that Russia is the second largest nuclear weapon holder in the world. Russia has also been accused of increasing its chemical weaponry too. The US and Britain took the help of chemical and other destructive weapons to overthrow Saddam Hussein's rule in Iraq. The then-Defense Secretary of US- Colin Powell presented the false pieces of evidence of destructive weapons projects in the United Nations Security Committee.

Russia has asked for evidence which proves their involvement in poisoning. France President Emmanuel Macron has said that these issue of poisoning in the UK is attack on whole Europe's sovereignty. Whether it's America or any European country; Russia or China; all countries are involved in spying. Multinational companies seek the help of private spies to protect their interests. Now, cyber technology has replaced human spies. In World War II, Hitler's Germany had made chemical weapons which could create havoc. Crusader Hitler used these poisonous gas against Jews but did not dare to use these weapons in the war. Britain's then Prime Minister Winston Churchill used chemical weapons, regardless of world opinion. China is looting mineral wealth by investing in Africa. While building the headquarters of the African Union on its own, China has created a spy network that records all its operations. There is no doubt then, that incidents like Skripal will continue to happen.

Saturday, 9 December 2017

Rising Military Dictatorship In Pakistan

Whichever may be the country, fervent opposition to the radicalism always takes place by the conservatives. In Pakistan, the draft of the Election Reforms Bill-2017 was presented in Parliament. This draft made the government and the people disrupt since last 22 days. Once again the anarchy in Pakistan highlighted that the wisdom always fails against ochlocracy.

According to a certain law in Pakistan, all Muslim candidates contesting for elections have to submit affidavit. They have to write in the affidavit that Prophet Muhammad was the last Prophet of Islam, after which no other person became Prophet. 

In the aforementioned proposed bill, this condition was removed. But some took this provision as anti-Islam & started opposing it. Religious fundamentalists funded parties like Tehreek E Labaik, Sunni Tehreek, Tehreek-e-Khatme Nabuwwat disrupted whole country. However, The government agreed that mistake has been made. It also withdrew the provision. But, the hardline fanatics were not satisfied. This incidence highlighted Pakistan's political instability. The evil consequences of driving the Nation on the basis of religion are consistently seen, because religion & logic seldom go hand in hand.

Six civilians were killed in violence caused by this incidence. 95 soldiers including 200 civilians were injured. Although it seems that the resignation of Law Minister Zahid Hamid has mitigated the protest, more worrisome is how such a situation was happened in first place.

Although the Minister of Law bowed down to the pressure, Shaukat Aziz Siddiqui, the judge of the High Court reprimanded Home Minister along with the army. This is some silver lining. Some such questions have arisen on this occasion. When instructions were given to desolve the agitation, why did the Home Minister gave army the role of mediator? Why the government had to bend the knee against the protestors?  What right the army had that it decided to intercede? Home Minister Ahsan Iqbal had no answers.

 It is expected from the army to be in the limits of the constitutional duties. But how can the army remain passive about the people who are taking law in their hands? It can be said that the unofficial alliance between the Pakistani military and local fundamentalists is no more hidden. Not only this, but the command of the army on the government is too, clearly highlighted.

This is also an indication that interference and impact of the military on Pakistani politics is going to escalate in near future . As a neighboring nation, India has to take notice this subject matter.

It is notable that in 2011, the former governor of Punjab,Salman Taseer tried to revise this very law, but was murdered by his own bodyguard Mumtaz Qadri.

Tuesday, 28 November 2017

Robert Mugabe: A Hero Turned Villain

Zimbabwe's former President Robert Mugabe's cabinet has been dissolved by the new president. In The Zimbabwe African National Union-Patriotic Front (ZANU-PF), which was founded by Mugabe, too was a growing discontent about him. The military had temporarily removed Mugabe's imprisonment and he was given an opportunity to step down from the post in honor. Mugabe's intention after being elected to power till the next year's election and then give the post to his wife, Grace Mugabe has been knocked down by the opponents.

Mugabe, who gave independence to the country by leading the freedom movement, had become the inspiration for the fighters against the anti-racism regime in South Africa. Nelson Mandela, after completing his presidential term, handed over the government to Thabo Mbeki and later to Jacob Zuma. Mandela could have stayed as a president at that time. But he was not fascinated by power. Mugabe did not find this example good enough to emulate.

11 years of imprisonment for the country, good work done during the first ten years after gaining power has been long forgotten because of Mugabe's obsession of clinging to power.

Mugabe's career, especially since the 2008 presidential elections, has been controversial. Even before that, in 2000, his scheme of seizing of one crore 5.5 million hectares of agricultural land from white minorities without compensation & giving it to black people failed. Political leaders, activists, military and civil officials grabbed four lakh acres of that land. Zimbabwe was Africa's biggest exporters of food. Minority white people were British. Therefore, the wrath of the international financial institutions influenced by the UK, the European Union and the Western countries fell on Mugabe. The country's economy declined. 4 million people out of 15 million flee from the country. Mugabe, being targeted at the international level became more aggressive. As a result of insecurity, the monopolistic tendency increased in him. 

If nothing else, Mr Mugabe has always been an extremely proud man. He often said he would only step down when his "revolution" was complete. 

Didymus Mutasa, one of Mr Mugabe's closest associates, once told the BBC that in Zimbabwean culture, kings were only replaced when they die "and Mugabe is our king".

But even his closest allies were not ready for Zimbabwe to be turned into a monarchy, with power retained by a single family.

Wednesday, 8 November 2017

Chabahar: The port of Good Hope for Afghanistan, Iran & India

Over the last decade, the foreign policy of India is to establish financial relations in regional and international boundaries. Knowing the fact that there is no possibility of getting any assistance from Pakistan, India was looking for other alternatives to increase trade with Europe, Russia, Africa and Central Asia. In this efforts, India's intention was not just to strengthen its political-economic interests with Afghanistan, but also to suppress Pakistan-China friendship and their domination. Chabahar in Iran was a useful port in that aspect. One trait of this port is that the port is near Pakistan's Gwadar port & from the port, it is possible to trade with Afghanistan and further till Europe-Central Asia.

 A few years ago, India was pondering on doing trade with Central Asia and Europe through Gwadar Port & such wish was expressed to Pakistan; But Pakistan did not allow the permission to use this port. India took the rejection from Pakistan as an opportunity to start the discussions with Iran to develop their Chabahar port. Iran, on the other hand, was looking for an opportunity to disrupt the US-China-Pakistan dominance. They were ready to develop their own port with the help of India and now it is being developed. On Sunday, India exported nearly one million tonnes of wheat to Afghanistan from Chabahar port. This is a very important step from India in helping Afghanistan's reconstruction program. With this assistance, the question of hunger among millions of Afghan nationals will be removed. Thus, this port has allowed India to trade with Afghanistan excluding Pakistan. Since this port is in Iran, India's efforts to establish friendly relations with this powerful country in Central Asia also succeeded. Moreover, this new aspect of Afghanistan-Iran-India friendship will be a  headache for China and Pakistan, that's a different advantage.

The trade that started in the Chabahar port should be considered as a milestone in the foreign policy of India. This is because Pakistan and China are trying their best to prevent India from participating in Afghanistan's rebuilding program. One part of it is that Pakistan has provided a big financial support to terrorist groups in Kashmir & Afghanistan. But three years ago, Obama began to call for withdrawal of US forces from Afghanistan and it caused a political instability in Afghanistan but India started participating in Afghanistan's rebuilding program. As a result, strategy of China & Pakistan of keeping Afghanistan turbulent and unsteady in order to control various terrorist groups and governments failed. 

With the development of Chabahar port, India and Iran have decided to make full use of these port. The road from Chabahar to Zahedan in Iran and road from Zaranj to Delaram in Afghanistan has been developed. Due to this pathway, most of India's business will not be from the Indian Ocean but it will be channeled through Afghanistan to Central Asia and Europe. Japan has also shown interest in developing Chabahar port because it has given them an opportunity to enter into a technology and investment agreement with India. On the other hand, India has also signed an agreement with Iran Railways to start a railway project from Chabahar to Zahedan. 

If the foreign policy is firmly asserted, the market becomes stronger and the country also establishes new allies. As a result of Chabahar port development, India has formed new allies.

Friday, 3 November 2017

Rex Tillerson's Visit Brings New Hope For India-US Relations

US Secretary of State Rex Tillerson arrived in India in the last week of October. At the same time, India's new Trade and Industry Minister Suresh Prabhu returned to India from USA. Indo-US relations have reached the new height and as a result, both countries will benefit.

Currently, China is doing some worrying movements from India's perspective. China's also advocating Pakistan. On this background, discussions between Tillerson & India's Foreign Minister Sushma Swaraj and between US Trade Minister Robert Lighthizer & Suresh Prabhu have given rise to new hope.

Rex Tillerson criticised China's expansionist policies, especially their interference on the sea route. He expressed concerns about the intensity of Chinese incursions in the Asia-Pacific Ocean area. On top of it; US, with the help of India, Japan and Australia has shown initiative to prepare a startegy to keep Chinese expansionism in control. The Tillersan made the statement that the whole country was completely disillusioned about Pakistan. Pakistan has given accommodation to Siraj Haqqani and two more terrorists and Pakistan should hand over these terrorists to the United States. 

In the last two and a half decades, the world's point of power has shifted from the Euro Atlantic region to the Asia-Pacific Ocean region. Chinese officials are fanatic about making their sole dominance over the Indian Ocean and the Pacific Ocean. In fact, they are trying to enter into the Arabian Sea from Pakistan's Gwadar port. In such an environment, it is fitting that the United States has taken steps to enhance India's defenses. 

In light of these events, meeting between Trade Minister of India, Suresh Prabhu and US Trade Minister Robert Lighthizer in the US, has also been a historic meeting. Since 2005, Delhi and Washington have been more active in promoting trade, and since the turnover of the trades has increased from $36 billion to $100 billion in present & both states desire to increase the turnover to $ 500 billion in the next five years. India wants US investment in various Indian industries. America's capital needs a profitable investment area. These are well-known signs that both countries can increase complementary trade.