The global financial crisis had threatened to turn the clock back on a globalising India. Instead, the hands of time have advanced and the country’s impact has increased.
Second only to China as a fast-growing large economy, unlike that export-driven giant, India emerged relatively “unscathed” by the global economic downturn, in the words of the Asian Development Bank.
If economists were surprised when the country raced away from what had been resignedly called “the Hindu rate of growth” of about 3 per cent to reach highs of 9 per cent in the mid-2000s, they have been even more impressed in past months by India’s ability to withstand falling exports and external financial shocks.
The country’s economic policymakers have received international praise for their response to the crisis. In recent weeks, projections for a speedy recovery have grown more optimistic.
Manmohan Singh, the prime minister and the man responsible for opening up the economy in the early 1990s, speaks of a return to 9-10 per cent growth in a “couple of years”. His finance minister, Pranab Mukherjee, forecasts 7.7 per cent this year, a fiscal stimulus-fuelled rise from 6.7 per cent last year.
“Underlying our system is an inherent political and economic resilience that gives our country and its institutions great strength and buoyancy,” Mr Singh reflects. “During the year gone by, the world faced an unprecedented economic and financial crisis. But the Indian economy weathered it quite well. We were affected, but not so much as many other countries.”
This was just as well. The 77-year-old Mr Singh warns that “the impatience of youth” – in a country where 70 per cent of the 1.2bn population is under 35 – will increasingly determine India’s future. He has prudently chosen education, health, infrastructure and agriculture as the top priorities after winning a second term in office last year.
He is simultaneously pushing forward the country’s interlinkages, striking free trade deals with Asean and South Korea, and negotiating another with the EU.
The resilience of the economy rests on a huge domestic market, and, unlike many Asian counterparts, a limited reliance on exports, which are less than 20 per cent of gross domestic product. While domestic demand was largely uninterrupted by the financial crisis, export sectors, such as diamond cutting and polishing, pharmaceuticals and textiles, suffered precipitous declines and are only now recovering.
Foreign capital flows and valuations on Sensex, the benchmark index on the Bombay Stock Exchange, bounced back rather quicker as investors seek returns from one of the brightest poles of economic activity.
Mergers and acquisitions activity is also set to rise. Cash-rich companies are weighing purchases in recession hit Europe, the US and other emerging markets.
A fast-growing economy, albeit with a strong internal motor, will hasten globalisation. The industrial sector is expanding at a double-digit rate, services, 55 per cent of GDP, are not far behind. Only agriculture, dented by a poor monsoon and representing 20 per cent of GDP, lags.
But there are still plenty of obstacles in the way of an open economy. “A racing car with the handbrake on,” is how one visiting politician describes the drag of over-regulation, red tape, vested interests and decrepit infrastructure.
Lee Kuan Yew, Singapore’s former prime minister, identifies failure to follow China’s focus on infrastructure as one of the biggest handicaps to India’s global integration.
The confident mood across Asia has led many international business leaders to comment on the stark contrast between the ambitions of large developing economies and the more introspective, punishing mood in the west.
Robert Zoellick, president of the World Bank, is one. “We all look to India now as a rising global economic power and in our interconnected world it has played a helpful role over the tough moments of the past year, not just during the discussions of the G20, but also in how it has steered [its] recovery,” says the former US Trade Representative, who once locked horns with India in trade talks.
International partners are beating a path to the door, lured by the promise of a drive towards manufacturing to add to the momentum achieved by a globalised services industry.
“In the caricature of the global economy,” says Lord Mandelson, the UK’s secretary for business. “China makes it, America buys it, India provides the after sales customer service and Britain does the structured finance.” That formulation is changing.
“India stands at a critical point in its transformation,” he says. “A young population is eager for change and the freedom to realise this global ambition. If India’s initial growth was driven by low-cost and low-value service provision, the next wave will be tied to rising value-added technology-driven manufacturing and services.”
This next wave has already arrived. The IT outsourcing sector – the likes of Tata Consultancy Services (TCS), Wipro and Infosys – and automotive industry – including Hero Honda, Bharat Forge and Tata Motors – are innovating and adopting technologies to create a global “footprint”.
N Chandrasekaran, the chief executive of TCS, says the downturn in the west has opened up greater opportunities in IT outsourcing and business processing.
But he lays emphasis on developing new capabilities, products and business models to remain relevant to clients and move into new countries. “When offshoring itself was first proposed, no one believed it was a business model,” he recalls.
The confidence in the growing economy has permeated other areas too. Over the past year, India has sought to play a greater leadership role in multilateral forums debating trade, climate change and reforming the global financial architecture.
Next month’s national budget will be a test of whether the Congress party-led government can make the most of the post-crisis period and a strong victory in last year's polls, by embarking on structural reform.
Business groups are lobbying for liberalisation of the defence, retail and financial services sectors, labour market reform and state disinvestments to help sustain growth projections.
The Reserve Bank of India, the central bank, meanwhile, is renewing efforts to broaden financial inclusion, and reach out to the unbanked masses.
In the shorter term, rebuilding foreign exchange reserves, allowing the rupee to appreciate to help cool inflation, while maintaining a partially open capital account are the priorities.
Some believe that the country’s economic fortitude is derived from its isolation and a protective shield of regulation, forged over decades of socialist policies and entrenched local business interests.
But the benefits of a greater share of world trade, remittance flows close to $50bn a year and the appeal of foreign capital inflows are shaping policy.
“India was less affected by the crisis than the rest of the world, not because it was isolated but because its capitalist fundamentals are strong,” argues Shashi Tharoor, the minister of state for external affairs and former United Nations official. “India will not return to the economics of nationalism which equated political independence with economic self-sufficiency.”
The embrace of the outside world, however, will be anything but rushed. On this, Mr Singh has the last word: “It is probably true that we are a slow-moving elephant but it is equally true that with each step forward we leave behind a deep imprint. There is a price that we pay in trying to carry all sections of our people along ... It is perhaps a price worth paying.”
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Wednesday, February 17, 2010
Greece loses EU voting power in blow to sovereignty
The European Union has shown its righteous wrath by stripping Greece of its vote at a crucial meeting next month, the worst humiliation ever suffered by an EU member state.
The council of EU finance ministers said Athens must comply with austerity demands by March 16 or lose control over its own tax and spend policies altogether. It if fails to do so, the EU will itself impose cuts under the draconian Article 126.9 of the Lisbon Treaty in what would amount to economic suzerainty.
While the symbolic move to suspend Greece of its voting rights at one meeting makes no practical difference, it marks a constitutional watershed and represents a crushing loss of sovereignty.
"We certainly won't let them off the hook," said Austria's finance minister, Josef Proll, echoing views shared by colleagues in Northern Europe. Some German officials have called for Greece to be denied a vote in all EU matter until it emerges from "receivership".
The EU has still refused to reveal details of how it might help Greece raise €30bn (£26bn) from global debt markets by the end of June. Investors are unsure whether this is part of Kabuki play of "constructive ambiguity" to pressure Greece and keep markets guessing, or reflects the deep reluctance by Germany to be drawn deeper in an EU fiscal union. Greek bonds sold off as ten-year yields jumped to 6.42pc, but the euro rallied to $1.3765 against the dollar as broader issues resurfaced in currency markets.
Jean-Claude Juncker, head of the Eurogroup, hinted that ministers have already agreed on a support mechanism, should it be necessary. It will most likely involve by bilateral aid by eurozone states. He said proposals for an IMF bailout - backed by Britain - were "absurd" and would shatter the credibility of monetary union.
Many Germans disagree, including Otmar Issing, once the backbone of the European Central Bank. He said an EU rescue for Greece would be fatal, arguing that unflinching rigour is the only way to hold monetary union together without political union.
Tuesday's EU verdict amounted to a thumbs down on Greece's earlier austerity efforts, viewed as too reliant on one-off measures and too light on spending cuts. Greece must reduce its deficit from 12.7pc of GDP to 3pc in three years. Greek customs officials expressed their anger by kicking off a three-day strike, the first of many stoppages set to culminate in a general strike next week.
However, premier George Papandreou has won support from key political parties and a majority of the people. Greece may yet surprise critics by mustering its Spartan Spirit.
The council of EU finance ministers said Athens must comply with austerity demands by March 16 or lose control over its own tax and spend policies altogether. It if fails to do so, the EU will itself impose cuts under the draconian Article 126.9 of the Lisbon Treaty in what would amount to economic suzerainty.
While the symbolic move to suspend Greece of its voting rights at one meeting makes no practical difference, it marks a constitutional watershed and represents a crushing loss of sovereignty.
"We certainly won't let them off the hook," said Austria's finance minister, Josef Proll, echoing views shared by colleagues in Northern Europe. Some German officials have called for Greece to be denied a vote in all EU matter until it emerges from "receivership".
The EU has still refused to reveal details of how it might help Greece raise €30bn (£26bn) from global debt markets by the end of June. Investors are unsure whether this is part of Kabuki play of "constructive ambiguity" to pressure Greece and keep markets guessing, or reflects the deep reluctance by Germany to be drawn deeper in an EU fiscal union. Greek bonds sold off as ten-year yields jumped to 6.42pc, but the euro rallied to $1.3765 against the dollar as broader issues resurfaced in currency markets.
Jean-Claude Juncker, head of the Eurogroup, hinted that ministers have already agreed on a support mechanism, should it be necessary. It will most likely involve by bilateral aid by eurozone states. He said proposals for an IMF bailout - backed by Britain - were "absurd" and would shatter the credibility of monetary union.
Many Germans disagree, including Otmar Issing, once the backbone of the European Central Bank. He said an EU rescue for Greece would be fatal, arguing that unflinching rigour is the only way to hold monetary union together without political union.
Tuesday's EU verdict amounted to a thumbs down on Greece's earlier austerity efforts, viewed as too reliant on one-off measures and too light on spending cuts. Greece must reduce its deficit from 12.7pc of GDP to 3pc in three years. Greek customs officials expressed their anger by kicking off a three-day strike, the first of many stoppages set to culminate in a general strike next week.
However, premier George Papandreou has won support from key political parties and a majority of the people. Greece may yet surprise critics by mustering its Spartan Spirit.
Japan retains title as world's second biggest economy
Japan retained its title as the world's number two economy in 2009, ahead of China, extending a recovery from a brutal recession with a robust fourth-quarter performance, data showed Monday.
But China, which grew at 8.7pc last year, came close to unseating its neighbour from the position it has held for more than 40 years.
Japan's economy grew 1.1pc in October-December from the previous quarter, for an annualised pace of 4.6pc, the government reported.
For the whole of 2009, Japan's gross domestic product (GDP) shrank 5pc as exports and factory output collapsed during the global economic downturn, the data showed.
Despite the severe contraction, Japan stayed just ahead of China as the world's second-largest economy.
Japan posted nominal GDP of about 5.08 trillion dollars last year, based on the average dollar-yen exchange rate for 2009, the data showed.
China reported last month nominal GDP of about 4.9 trillion dollars for 2009.
But with China expected to enjoy another year of strong growth in 2010, Japan risks ending this year in third place worldwide as it struggles to cope with renewed deflation and a shrinking population, analysts said.
"China's population is 10 times larger than that of Japan. It's quite natural for China to overtake Japan in the face of rapid globalisation," said Toru Shimano, economist at Okasan Securities.
In terms of per capita GDP, China - with a population of more than 1.3 billion people - trails far behind Japan, with about 128 million.
China returned to double-digit growth in the fourth quarter of 2009 with a red-hot expansion of 10.7pc.
Without China's boom, Japan's economy would be even more sluggish given that the two are major trading partners, analysts said.
Comparisons between the two countries are complicated by exchange rate fluctuations. If the yen weakens further, that could hasten China's ascent to world's number two behind the United States.
But China, which grew at 8.7pc last year, came close to unseating its neighbour from the position it has held for more than 40 years.
Japan's economy grew 1.1pc in October-December from the previous quarter, for an annualised pace of 4.6pc, the government reported.
For the whole of 2009, Japan's gross domestic product (GDP) shrank 5pc as exports and factory output collapsed during the global economic downturn, the data showed.
Despite the severe contraction, Japan stayed just ahead of China as the world's second-largest economy.
Japan posted nominal GDP of about 5.08 trillion dollars last year, based on the average dollar-yen exchange rate for 2009, the data showed.
China reported last month nominal GDP of about 4.9 trillion dollars for 2009.
But with China expected to enjoy another year of strong growth in 2010, Japan risks ending this year in third place worldwide as it struggles to cope with renewed deflation and a shrinking population, analysts said.
"China's population is 10 times larger than that of Japan. It's quite natural for China to overtake Japan in the face of rapid globalisation," said Toru Shimano, economist at Okasan Securities.
In terms of per capita GDP, China - with a population of more than 1.3 billion people - trails far behind Japan, with about 128 million.
China returned to double-digit growth in the fourth quarter of 2009 with a red-hot expansion of 10.7pc.
Without China's boom, Japan's economy would be even more sluggish given that the two are major trading partners, analysts said.
Comparisons between the two countries are complicated by exchange rate fluctuations. If the yen weakens further, that could hasten China's ascent to world's number two behind the United States.
Sir Richard Branson says Britain's deficit is a serious risk to recovery
Although the Virgin Group boss insisted he is still apolitical, his comments followed a private meeting last week with David Cameron and George Osborne in which he told the Conservative leaders that he agreed with their plans to cut the deficit immediately.
Sir Richard told The Daily Telegraph: "I believe the UK's record budget deficit does pose a serious risk to our economy's recovery – you only have to look at some other countries to see that.
"It would be deeply damaging to Britain if we lost the confidence of the global financial markets through delayed action and saw interest rates have to go up steeply.”
He added: “The next Government, whatever party that is, must set out a credible plan to reduce the bulk of the deficit over a Parliament by cutting wasteful spending and must not put off those tough decisions to next year.”
The Government has said it would not begin to pay off the deficit until 2011, arguing that withdrawing the fiscal stimulus too early would damage the recovery.
In one of the key points of difference between the two main parties in the run up to the General Election, the Conservatives have said they would hold an emergency budget within the first 50 days that would introduce spending cuts this year. However, more recently Mr Cameron said there would not be "swingeing cuts" immediately.
Sir Richard has joined other business and economic leaders in calling for even faster action on Britain’s debt problem.
At the weekend a group of 20 senior economists signed a letter saying their was "a compelling case" for the first measures to cut the deficit straight after the election.
The signatories included the former chief economist of the International Monetary Fund, a former deputy governor of the Bank of England and head of the Financial Services Authority, and a former permanent secretary to the Treasury and cabinet secretary.
The letter said: "In order to be credible, the Government's goal should be to eliminate the structural current budget deficit over the course of a parliament, and there is a compelling case, all else equal, for the first measures beginning to take effect in the 2010-11 fiscal year."
Sir Richard said that failure to act would “threaten to undermine the confidence of international and UK business, UK consumers and the global financial markets.”
He said: “As an entrepreneur I know that could cost jobs and reduce investment in Britain. We must send a clear signal that we have the issues in hand and a clear strategy for UK plc."
Sir Richard told The Daily Telegraph: "I believe the UK's record budget deficit does pose a serious risk to our economy's recovery – you only have to look at some other countries to see that.
"It would be deeply damaging to Britain if we lost the confidence of the global financial markets through delayed action and saw interest rates have to go up steeply.”
He added: “The next Government, whatever party that is, must set out a credible plan to reduce the bulk of the deficit over a Parliament by cutting wasteful spending and must not put off those tough decisions to next year.”
The Government has said it would not begin to pay off the deficit until 2011, arguing that withdrawing the fiscal stimulus too early would damage the recovery.
In one of the key points of difference between the two main parties in the run up to the General Election, the Conservatives have said they would hold an emergency budget within the first 50 days that would introduce spending cuts this year. However, more recently Mr Cameron said there would not be "swingeing cuts" immediately.
Sir Richard has joined other business and economic leaders in calling for even faster action on Britain’s debt problem.
At the weekend a group of 20 senior economists signed a letter saying their was "a compelling case" for the first measures to cut the deficit straight after the election.
The signatories included the former chief economist of the International Monetary Fund, a former deputy governor of the Bank of England and head of the Financial Services Authority, and a former permanent secretary to the Treasury and cabinet secretary.
The letter said: "In order to be credible, the Government's goal should be to eliminate the structural current budget deficit over the course of a parliament, and there is a compelling case, all else equal, for the first measures beginning to take effect in the 2010-11 fiscal year."
Sir Richard said that failure to act would “threaten to undermine the confidence of international and UK business, UK consumers and the global financial markets.”
He said: “As an entrepreneur I know that could cost jobs and reduce investment in Britain. We must send a clear signal that we have the issues in hand and a clear strategy for UK plc."
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