( BROWN AND SARKOZY,IS HONEYMOON OVER?)
THE world economic down turn has started showing its ugly and horrendous faces in social spectra also. The impact of this recession is gradually percolating down vertically and spreading horizontally across the global village. The economic depression, the product of U.S.A., is being exported throughout the length and breadth of globe and letting its jitters felt in all sections of the society.
In Europe , France is witnessing the worst ever street-protests against the alleged failure of the government in tackling the economic slowdown and mitigating the woes of its citizens. President Sarkozy is facing a grave challenge and the sweet memories of his honeymoon with Bruni are fading. This unrest has strained his relation with Gordon Brown also. Britain on the other hand, is also witnessing protests and anti-government demonstrations. “British company only for British employees” is being advocated for, very staunchly. In fact British companies have been hiring cheap paid employees from other European countries, are permissible in European Union Law, and are becoming bone of contention.
Similar social and political unrests are being witnessed in Russia and in many other erstwhile members of Warsaw Pact countries. Prime Minister Putin and President Dmitry Medevedev have been facing rough weathers in Russia. Putin, once hero of Russian people, whose popularity was said to be at a soaring level, when he quitted the presidency, is also under tremendous pressure.
Even in America, people are taking to streets and demanding tough, decisive and result oriented steps so that their lives are brought back to normalcy. In spite of Bush’s 700 billion dollar TARP (bailout package) more than 18000 jobs are being lost every month. According to America’s own labour department statistics, the un-employment rate is about to touch a double digit figure, a all time high in the post depression economic history of the country. Obama’s historic coronation to the Whitehouse seat has instilled a huge amount of hopes, which is both an asset as well as liability for this first African-American non-white president. His 836 billion dollar US Stimulus package will take few more months to make its impact felt in the socio-economic arena. Till then the American society’s patience will be put to test.
The Asian dragon, the republic of China, hitherto unscathed from the scratches of the down turn is also undergoing socio-economic as well as political upheavals. The massive 900 PLUS billion dollar stimulus package has been put on top gear of the economic vehicle. The thirst, the government says, will be on ways and employment oriented infrastructural developmental activities like Rail and roadways constructions. In spite of this the growth of this Asian Giant has shrinked to 7.5 percent. The toys industries, one of the biggest exporters of the world, have suffered very badly. It has butchered the employment to such an extent that the stimulus package’s after effects are also being neutralised.
India, one of the fastest growing economies of the world, too could not remain insulated from the viral infection of the global economic ailment. The massive pumping of liquidity into the financial systems through frequent rate cuts in CRR, SLR, REPO and REVERSE REPO RATES have applied some ointments on the bleeding wounds of economy but still a lot is required to be done. The stimulus package of Montek has a long way to go before it reaches to the tattered masses. The brunt of the slowdown has taken millions of jobs head here in India also but the social and political unrest at a magnitude similar to those in other parts of globe is not imminent here. Thanks to the accustomed Indian psyche and its endless power of tolerance. The institutionalised and bureaucratised network of social security system has done a commendable job here in this country. NATIONAL RURAL EMPLOYMENT GUARANTEE SCHEMES (NREGS), the brain child UPA government, has come as a huge relief for the people living below the poverty lines in the countryside. The massive allocation of more than 60 thousand crore rupees over a period of 3 years has done miracles in the rural economy of this country in the sense that it has provided pennies in the pockets of billions of people. It worked on KEYENESIAN theory which is based on the principle of government expenditure vis-a-vis the purchasing power of people.
THE TREND OF PROTECTIONISM -The WTO has released a report that says that about 16 countries have take protectionis measures since September the last. Many experts believe that these anti-free trade measures will provoke retaliation from other countries also and may led to reveral of the entire process of free trade capitalism across the globe.The trend of protectionism is set in USA also, ‘Buy American’clausein America’s 819 billion dollars stimulus package smack of protectionism. US administration's decision regarding H-1B visa restrictions are not in congruent with the policy of ‘lazes- fairre’, a policy which America do not get tired of boasting. One 'Patriot employer Act' is on anvil, which will give incentives to the employers taking some protectionists and social security measures with respect to providing employement in USA. Many Europeans are tightening their immigration regulations with a sole motive of saving their economy and providing employment to their own citizens. America has imposed an undeclared ban on Chinese goods. The Japanese economy has shrunk to almost negative growth due to shrink in exports, the main growth factor coming in Japanese economy, to almost Zero level. This is suggestive of the fact that the importing countries have stopped Japanese goods into their countries.
Many Europeans nations have resorted to such similar moves which go against the basic tenets of capitalism. Germany for example have provided huge subsidies to its industries and sought to protect its economy from the onslaught of the recession. Chinese have restricted imports and is providing unprecedented protection. President Sarkozy has hinted that some protectionist steps would be taken to save the ‘French Detroit’, move opposed by many European nations themselves.
Canada, Mexico, Brazil, Argentina, Russia, Ukraine, Japan, South Korea, etc all are on similar move. The sentiment is running high across the world in favour of protectionism and the ideals of free economy are being abhorred now.
The excessive financial leverage and excessive greed have ruined the financial fabric beyond repair. According to an estimate, the financial leverage in 1980 was 108% which rose to 600% in 2007 and lending was done of worth 600 trillion dollar whereas; the total Global GDP was only about 55 trillion dollar. What an excessive leverage and what as mad race it was.
The champions of ‘European Unification’ ‘Under One Europe’, one currency and one parliament under ‘European Union Umbrella’ are sitting quiet now. The global economic forums like WTO and World Economic Forum at Davos seem to have postponed their ‘Unified world market and non-subsidised’ world economy plans. All the motions, it seems have been kept in abeyance, thanks to Xenophobia everywhere.
IMPACT ON INDIA DUE TO ‘BUY AMERICAN’ CLAUSE- the Indo-US trade has witnessed spectacular rise over a decade. According to the Ministry of Commerce, the export from India to USA has been of 160 Billion dollar in 2007-08 which rose to 200 billion dollar in 2008-09. The chart below gives the picture of more than a decade-
1993 1994 1995 1996 1997 1998 1999 2000
India’s Exports 4,551 5,302 5,736 6,169 7,322 8,237 9,071 10,686
India’s Imports 2,761 2,296 3,296 3,318 3,608 3,564 3,688 3,663
Turnover 7,312 7,598 9,032 9,487 10,931 11,801 12,759 14,349
Balance (+) 1,790 3,005 2,440 2,851 3,715 4,673 5,383 7,023
(* Source: US Department of Commerce, Bureau of Census) ,
The above figures suggest the increasing trend of the bilateral trade over the years which have reached more than 200 billion dollars. As far as the composition of the trade is concerned, India's exports to the US have been rising mainly on account of significant increases in the exports of diamonds, textiles and ready-made garments, machinery, carpets, footwear and leather products, dyes, iron and steel products, chemicals, edible fruit and nuts and spices, coffee and tea. Items such as, cut and polished non-industrial diamonds, jewellery, textiles and clothing, carpets, shrimp and other marine products, footwear and leather goods, iron and steel, and cashew nuts constitute over 70% of total Indian exports to the USA.
The volume of these exports is expected to witness a downward trend owing to the restrictions imposed in the stimulus package.
As far as import of India from USA is concerned, there has been a change in the composition of India’s imports from the USA also. Due to increase in our food grains production especially wheat and edible oils, the imports of these items from the USA on a regular basis have stopped. Crude oil, which remained one of the highest imported items from USA in 1980s has been gradually phased out.
At present, we import from America, items like machinery including project items, fertilizers, aircraft and aeronautical equipment, medical equipment, and organic chemicals etc. undoubtedly, if our exports experiences contraction, we would resort to contraction of imports from USA also in order to see that the balance of trades in not slated excessively in favour of USA
USA is the largest trading partner of India. Share of USA in India’s export is 17%, and its monetary value as we have seen is more than 200 billion USD. This economic meltdown had already adversely affected India’s export in general and export to USA in particular. According to Federation of Exporters Association (FOE), the exports from India are already showing signs of decline due to this slowdown syndrome. Figures suggest that it is experiencing a decline of more than 15%.
The bilateral trade has been galloping with unprecedented pace due to variety of reasons, thanks to the cementing of bilateral ties over a number of issues including strategic and nuclear matters.
Although, this protectionist clause will help improve the situation in the domestic demand in America on short term basis, but in the long term, this would affect adversely the American trade also. If exports from this country plummets, similar retaliatory measures are taken by host of countries.
1. EFFECT ON IT-BPO AND SERVICE SECTORS- the service sector constitutes 50% in our GDP, meaning thereby that this sector has witnessed boom over a decade or so.
Over a period of time, the export of this sector increased by 33.5% amounting to 8.4 b USD in 2007-07, it is expected to reach 10-11 b USD by the end of 2007-08. According to National Association of Software and services Companies (NASSCOM), the number of employees working in BPO-IT sector in India is under-
Year Number of employees
2003-04
2,16,000
2004-05 3,16,000
2005-06 4,15,000
2006-07 5,53,000
The current figure is certainly much more and is increasing day by day. According to one estimate it has touched a figure of 1 million. They were getting salaries worth 1 b USD during the year before last year and naturally it has increase substantially in 2008-09. According to one estimate, about 82% of US software companies prefer Indian software professionals for obvious reasons.
The buy American clause would be adversely affecting this outsourcing industry also and Obama has made it clear that the American companies which outsource would not get tax reliefs. Message is clear, they would be discouraged from outsourcing the job to the Indian software sector in particular and service sector in general.
No comments:
Post a Comment