Thursday, October 29, 2009
Wednesday, October 28, 2009
Global Economic Meltdown and India( Need for government spending)
The global economy is in the midst of the worst crisis it has seen in 70 years. The International Labor Organization says that 51 million jobs in the world economy could disappear this year. The world economic growth has slowed down to 0.5 % (slowest since WWII). However, in the midst of it all India seems to be happily claiming that none of this has much of an impact on the Indian economy. Hmmm, think again. India may not have been affected by the global economic turndown as much as US, Europe or Japan, (not yet at least), but that doesn’t mean India is immune to it.
Although it may now seem a lifetime ago, it has only been a few months since the so-called “decoupling” hypothesis dominated media coverage of the global economy. It was considered that the Asian economies would be largely decoupled from the developed ones due to the robust domestic market. Well, now since that has been disproved it’s time that we start thinking of how to get out of this mess.
India’s financial sector may have been by and large, insulated from the rest of the world, which is why the Indian banks are in better condition than its counterparts worldwide. However, the rest of India’s economy isn’t. A lot of the boom in Indian economy can be attributed to the exports of goods and services to the developed countries. Though the percentage would not be high in real terms, it definitely created a multiplier effect to help the rest of the economy.The withdrawal of investments by U.S. firms and the sharp decline in U.S. demand for foreign goods and assets have hit our respective sectors sorely. India might not be able to escape these tremors quite so easily. Now with the world economy slowing down, the exports are starting to struggle and this would affect the economy adversely.
Our policy makers are aware of this and have taken certain measures to boost the slowing Indian economy. The Indian government has acted to unfreeze liquidity by aggressively cutting interest rates, the cash reserve ratio, and the statutory liquidity ratio. It has also announced fiscal stimulus in two stages, though on a much smaller scale than in many other countries.
However, the cutting of interest rates, CRR and SLR are not enough and bailouts (like what was done in the US) should be the last thing the government should do. It’s time to revert to a bit of Keynesian economics. Keynes argued that significant and heavy spending by the government was the best way to deliver the economy from such a crisis. Infrastructure spending, I believe would provide significant boost to the economy. Government must at all times continue to invest in measures that boost the long-term productive capacity of the economy.
It is good to see that the government has already started taking steps in this direction. The Cabinet yesterday (29 Jan 09) approved infrastructure projects worth Rs. 334bln (projects included were Chennai metro and widening of 1410 kms of highways). The CII advocates an additional spending of up to 15% on infrastructure projects like roads, low cost housing, power and ports. This, in addition to providing much needed boost to domestic demand for sectors such as steel, cement and other industry sectors would also acts as large employment generators and send out a ripple effect. (Check out “Keynesian multiplier”). The forthcoming elections would also play a great role due to the heavy spending that is associated with it.
This way, in addition to reviving the economy, the tax payer also gets to clearly see where his money is going (better transport, power and health). Though such measures may lead to a short term credit crunch, it would help the economy to a great extend in the long run.
Thursday, October 22, 2009
ANIIndia claims of its recovery from global meltdown
Wednesday, October 21, 2009
Global financial crisis tops Asia forum discussion
“The global financial meltdown has been caused by a superpower and unfortunately the world is paying for it,” Iranian Foreign Minister Manouchehr Mottaki said as he addressed the ACD conference in this hi-tech city.
“The US’ ambitious policies that were doomed to fail are the main causes of the financial crisis,” he said.
Advocating an overhaul of global industrial and banking sectors, the Iranian minister told representatives of Asian governments that “justice-based ways and means could save us from the crisis”.
Earlier, welcoming ministers and diplomats from 31 Asian countries, Kazakhstan Foreign Minister M. Tazhin also called for coordinated measures from Asian countries to correct the worsening financial situation.
“The world situation in the market of energy equally causes concern. We have approached to such a stage where recent jump of the prices has caused sharp falling demand and decrease in economic activity. The urgent coordinated measures to correct the situation are required (from) Asian countries,” Tazhin said.
The day-long meeting expressed serious concern over the impact of global financial crisis on Asian economies and stressed the need for joint efforts to address the issue by “coordination in a concerted manner through balanced improvement of global financial institutions in Asia”.
Russian Foreign Minister Sergey Lavrov said the Asian region had a role to play in solving world problems.
Lavrov said the world was gripped by the crises that “stress the necessity to promote collective methods of solution of world problems on the basis of possession of equal rights, mutual respect of interests and recognition of variety of models of development”.
“ACD is an important part of developments in regional cooperation. This young dialogue structure is at the stage of organisation,” the Russian minister said.
Amongst the issues discussed at the meet are the energy and food crises, development of an international transport corridor and initiating a common financial management in the region.
The Indian Ambassador in Astana, Ashok Sajjanhar, said the global food crisis was man-made and needed to be tackled by close cooperation among Asian states.
Sajjanhar proposed to hold a track-II ACD think tank meeting in India in 2009. The proposal was welcomed by member states.
The ACD was formed in June 2002 in Thailand to build links in the region by incorporating every country and form a community to consolidate strengths and competitiveness of the continent by maximising the diversity and rich resources in Asia.
Thursday, October 1, 2009
Economic Meltdown – How Far and What to Do?
I had occasion to keynote the annual Housing Conference in Washington State. In that speech I suggested to a skeptical audience of housing, building, and real estate officials that the debt problem then appearing was deeper and more structural than currently accepted. The economic indicators, stock market performance, and general near panic in official circles in the past week suggest that my analysis, not unique but unusual at the time, was correct.
This past week we heard the first proposals to shore up the general economy from Democrats and the President. The problem, however, is deep and structural and even cultural. It has to do with energy, with lifestyle, with the shape and form of what we build, and with global politics, and more.
One of most provocative and controversial observers of this scene is James Kunstler. His observations will usually take you over the edge where you peer into a true crisis. But, if you ignore this view you may miss the starker challenges that we face. His most recent blog entry, “Disarray,” is one of his best, because it summarizes the data has he sees it, then goes beyond that to list steps that he believes must be taken, soon. These include, stop highway building and instead start building rail, end subsidies to big ag and instead direct dollars to small local farmers, begin planning and construction of harbor and river shipping facilities (less energy intensive shipping), re-direct new development, decide about nuclear power, prepare for the end of current global commerce as currently conducted, prepare psychologically to downscale, take a time out from immigration, prepare for a lot of paper “wealth” to disappear, prepare for a psychology of resentment.
Some of Jim’s solutions here are perhaps cases of constant solutions in search of problems to attach themselves to (i.e., his preferred future vision), but this is a useful list of thinking to be considering as the economy plays out in the next months and years.
Wednesday, June 17, 2009
Wealth Creation in a Time of Financial Crisis
It is a common misconception that wealth creation is only possible during times of abundance. If you look at the lives of billionaires, you will realize that a number of them actually started getting rich when times were tough. The only difference that these rich people did in times of crisis is that they never gave up. For sure, the road to wealth is hard and winding, but persistence, resourcefulness, and creativity are keys to finding investment strategies that work even during hard times. So, even if you lost your house because of the real estate collapse in the country or if you lost your job when the big automakers trimmed down their workforce, do not give up. You can still get up and be rich if you really wanted to. Here are some of the wealth-building opportunities that you can look into during a recession.
Being resourceful and creative are important qualities of people who are interested in wealth creation. So if you are interested in getting rich, you need to observe more unique investment strategies. For example, because many people are being kicked out of their homes as a result of the mortgage crisis, what you can do is to offer services that will make their moving to another location easier. You may also look at the things that they are throwing out to see if you can resell those in online auction sites. You may also consider recycling trash or refurbishing electronics, appliances and even furniture. These are just some examples of what you can do to earn money (which in turn can be used eventually for investing in other more lucrative opportunities) at a very low cost. Finding ways to make things easier for people have made many home based entrepreneurs really rich.
If you have spare money during a recession, then you are in a better position to start your wealth creation. Many people will tell you that buying low and selling high are two of the most basic investment strategies in the book of great economists and businessmen. In a time of financial crisis, you will have more opportunities to buy commodities and even stocks at lower prices. In fact, now is the time to buy real estate since prices of homes, condo units and properties are rock bottom. Eventually the economy will grow again and you can get a higher price for the real properties acquired during the downturn. Also, many blue chip companies are trading at very low prices now so you can get more shares at a fraction of their market price. When these businesses turn around, you can sell their shares at huge profits. However, it is important to note that you should also study the market before you invest your money.
Lastly, gold, oil and renewable sources of energy should be a big part of your investment strategies for wealth creation. These industries are expected to gain in the coming years. Again, it is important that before you put your money into anything, you first learn the market concerned. Moreover, refrain from putting all your money in one investment opportunity.
Monday, May 18, 2009
The Boom in the IT Sector in India
Today, there are a number of children in America who no longer take the help of their family for help with their homework! All they need to do is get on the internet and go to an e-tutoring service, which is based out of India's IT hub - Bengaluru. This is just one of amongst the infinite number of examples that are a part of the boom in the IT sector in India. Going back to the homework, the children profit immeasurably with respect to their studies and this change is seen in their classrooms. Such is the case with all the different services offered by IT companies in India. The end user profits and that too at affordable rates!
The IT Services Revolution
In India Bengaluru city is the silicon valley of India. India has been in the throes of an IT revolution for a very long time now and the bubble has not yet burst. It keeps changing the face of India, and keeps affecting the world of business through it new technological advancements, day-in and day-out. There was a time very many years ago that the only thing that could be traded across border would be goods. Services could not be imported or exported as they were not tangible things and thus services of any country had no pressure from international competition. In Bengaluru city you will find companies in almost every street.
However with the arrival of the internet, every aspect of business was affected and very quickly services emerged as one of the fastest-growing sectors as far as international trade is concerned. Countries like India began offering low-cost services and the advantage of an increasing talent pool, to big companies, who saw the innate benefits of outsourcing their services to India. They realized that it was infinitely cheaper to outsource IT jobs like support, accounts, and payroll management etc to India.
Even in today's recession time people are moving to Bengaluru to explore the various opportunities available there. Business Process Outsourcing and Knowledge Process Outsourcing companies have become the key drivers of the IT boom in India.
The Indian Advantage
There are quite a number of reasons that have contributed to the boom in IT sector in India. One of the foremost reasons for this is the tremendous amount of workforce, most of whom are well-versed in the English language. English as we all know is the language of business. Moreover, all major cities in India have well-etched internet connectivity and the international data communications links are reliable and efficient.
Global Financial Crisis of 2008
On the one hand, many people are concerned that those responsible for the financial problems are the ones being bailed out, while on the other hand, a global financial meltdown will affect the livelihoods of almost everyone in an increasingly inter-connected world. The problem could have been avoided, if ideologues supporting the current economics models were not so vocal, influential and inconsiderate of others' viewpoints and concerns.
A collapse of the US sub-prime mortgage market and the reversal of the housing boom in other industrialized economies have had a ripple effect around the world. Furthermore, other weaknesses in the global financial system have surfaced. Some financial products and instruments have become so complex and twisted, that as things start to unravel, trust in the whole system started to fail.
The extent of the problems has been so severe that some of the world's largest financial institutions have collapsed. Others have been bought out by their competition at low prices and in other cases, the governments of the wealthiest nations in the world have resorted to extensive bail-out and rescue packages for the remaining large banks and financial institutions.
Some of the bail-outs have also been accompanied with charges of hypocrisy due to the appearance of socializing the costs while privatizing the profits. In the meanwhile, smaller businesses and poorer people rarely have such options for bail out and rescue when they find themselves in crisis.
To some extent risky borrowers bear some responsibility, but overall they have lost out; lenders are being bailed out, while those taking out risky loans either have lost their homes, or face a real threat of losing their home in the near future.
There is the argument that when the larger banks show signs of crisis, it is not just the wealthy that will suffer, but also potentially everyone. With an increasingly inter-connected world, things like a credit crunch can ripple through the entire economy.
Many have blamed the greed of Wall Street for causing the problem in the first place because it is in the US that the most influential banks, institutions and ideologues that pushed for the policies that caused the problems are found.
America is still immensely attractive to skilled immigrants and is still capable of producing a Microsoft or a Google. Even its debt can be overcome. It has enormous resilience economically at a local and entrepreneurial level.
For the developing world, the rise in food prices as well as the knock-on effects from the financial instability and uncertainty in industrialized nations is having a compounding effect. High fuel costs, soaring commodity prices together with fears of global recession are worrying many developing country analysts.
Many believed Asia was sufficiently decoupled from the Western financial systems. Asia has not had a subprime mortgage crisis as many nations in the West have, for example. Many Asian nations have witnessed rapid growth and wealth creation in recent years. This lead to enormous investment in Western countries.
In recent years, there has been more interest in Africa from Asian countries such as China. As the financial crisis is hitting the Western nations the hardest, Africa may yet enjoy increased trade for a while.
While the media's attention is on the global financial crisis (which predominantly affects the wealthy and middle classes), the effects of the global food crisis (which predominantly affects the poorer and working classes) seems to have fallen off the radar. The two are in fact inter-related issues; both have their causes rooted in the fundamental problems associated with a neoliberal, one-size-fits-all, economic agenda imposed on virtually the entire world.
Borrowing at a time of recession seems risky, but the idea is that this should be complimented with paying back during times of growth. Likewise, reducing interest rates sounds like there would be less incentive for people to save money, when banks need to build up their capital reserves. However, as the real economy starts to feel the pinch, reduced interest rate is an attempt to encourage people to take part in the economy.
Well-designed regulations may protect us in the short run and encourage real innovation in the long. Much of our financial market's creativity was directed to circumventing regulations and taxes. Accounting was so creative that no one, not even the banks, knew their financial position. Meanwhile, the financial system resisted many of the innovations that would have increased the efficiency of our economy. By reducing the scope for these socially unproductive innovations, we can divert creative activity in more productive directions.
The most powerful international institutions tend to have the worst democratic credentials: the power distribution among countries is more unequal, and the transparency, and hence democratic control, is worse.
Although history often shows that those with agendas of power tend to win out, history also shows us that power shifts. A financial crisis of this proportion may signify the beginnings of such a shift. During periods of boom, people do not want to hear of criticisms of the forms of economics they benefit from, especially when it brings immense wealth and power, regardless of whether it is good for everyone or not.