By Nantoo Banerjee

The world may yet to see capitalism’s worst hour of crisis, but with its epicenter, the USA, continuously producing one after another aftershock since the 2008 sub-prime catastrophe followed by a series of bank collapse, it may be a matter of time before other major economies and non-oil- exporting countries face a severe jolt. The latest down grading of the Citigroup, Bank of America and Wells Fergo and fresh $400-billion rescue package announced by the US Federal Reserve have considerably trembled the investor confidence the world over. The Citigroup is the world’s largest banking corporation in terms of assets and service network. The stock markets across the world – from New York to London, Tokyo, Paris, Frankfurt, Hong Kong, Shanghai, Sydney and Mumbai – crashed on September 22, 2011. The average fall was four per cent. The Mumbai stock exchange’s sensitive index shed over 900 points within 48 hours. The key global stock indices were down by 3-5 per cent, among the biggest in a single day trading since 2008.

Investor confidence is the single most important driving factor and ultimate barometer of capitalism’s success. The movement of global stock indices provides the measure of this confidence level. The current global market trend points at growing crisis of confidence among investors. The slow-down in the world’s four largest economies – the USA, China, Euro-zone and India – is portentous of an evil, possibly an impending global recession. Bankruptcy of Greece, debt mismanagement by Italy, Spain, Portugal and Ireland and near devastation of a large part of Japan due to recent natural calamities and leakage from nuclear power plants are all nerve-shattering news for the global investor community. The entire 17-country Euro-zone, barring Germany and France, is extremely concerned over an unprecedented debt crisis in the region and financial turmoil threatening the future of the common currency and the trade block.

Many have been taking ‘gold cover’ to risk-shield the value of their wealth against the adverse effect of the current economic turmoil. As a result gold prices have zoomed. But, the panic investment in gold too could be risky beyond a level and period. After all, gold is no substitute for economic growth and development. People don’t eat gold. The US economy, which boasts the world’s largest gold hoard, is shrinking. Its pride of place in the global economy is under threat from emerging nations such as China, Brazil, India and even Indonesia. The unprecedented economic growth along with awesome improvement of scientific and military capabilities of the People’s Republic of China in the last 25 years, under the Communist rule, has exposed the frugality of the capitalist system, ever-championing the cause of free economy and banking on stock markets, commodity markets, free investment movement and speculation.

The century-old US dominance of the list of top multinational corporations is fast waning. Today, among the world’s top ten corporations, only three are from the USA. They include Wal-Mart, the world No. 1 and, ironically, the single biggest retail vendor of China-made products. The number of Chinese corporations in the top ten is also three, all energy conglomerates. Among the rest, two are from Japan and one each from the UK and the Netherlands. Only three of the world’s top ten banks, including the second largest JP Morgan Chase, are American. Two each are from France, Scotland and Japan and one from the UK. Now, Chinese banks are aggressively expanding abroad. Why not? The total assets of China’s top five banks, including the Bank of China and Industrial & Commercial Bank of China and the China Construction Bank, as of July, last, was Y 48.99 trillion ($ 7.65 trillion), or equivalent of over 50 per cent of the present US GDP.

Chinese banks are gearing up, for the first time, to offer tens of billions of Renminbi (Yuan) as buyer’s credit to Indian industry, importing mostly power and telecom equipment from Chinese manufacturers. Hitherto, Indian industry raised external commercial borrowing (ECB) only from top first world multinational banks.

The independent studies by the International Monetary Fund (IMF) and the World Bank have predicted a big reshuffle in the global economic order in the next four decades with the Communist China far surpassing all other nations, including the USA. The 2011 world GDP ranking puts the USA on top with $ 15 trillion, followed by China $ 6.5 trillion, Japan $ 5.8 trillion, Germany $ 3.5 trillion, France $ 2.7 trillion, the UK $ 2.47 trillion, Brazil $ 2.42 trillion, Italy $2.18 trillion, Russia $ 1.89 trillion and India $ 1.70 trillion. It has been predicted that by 2050, China’s GDP will move to the No. 1 spot at $ 70.71 trillion at 2006 exchange rate of US dollars. The US GDP will grow to $ 38.51 trillion followed closely by India at $ 37.67 trillion. Brazil’s will be the fourth largest economy worth $ 11.34 trillion, followed by Mexico $ 9.34 trillion, Russia $ 8.58 trillion and Indonesia $ 7.01 trillion. Interestingly, not a single west European country and Japan figure in the IMF list of top seven global economic powerhouses in 2050.

The phenomenal rise of China challenges the very relevance of the laissez faire theory, the supremacy of popular democracy as a political system and the free world myth which puts individual before society. The communist ideology is just about the reverse, putting society before individual. The country comes first. The growth and development of a country, the prime focus of the centrally-controlled socialist system, automatically benefit individual citizens by ensuring a reasonable scale of distributive justice. In 1982, when China opened its domestic market to foreign investors, the main policy focus was on export. Thirty years on, China is the world’s largest exporting nation, far ahead of traditional global export giants such as Japan and Germany. China has the world’s largest dollar hoard, estimated at $ 4 trillion. It is also the world’s largest exporter of labour.

Much of the current economic strength of India is derived from its semi-socialist economic policy and the earlier focus on self-sufficiency, which created a giant public sector generating atomic energy to crude petroleum, defence equipment, aircraft, earth movers, telecommunications equipment and services, merchant marine vessels, railway and power equipment, space and satellite equipment, electronics hardware and equipment, and, even consumer goods such as textiles, automotive tyres and bicycles. Restrictions on foreign investment in low-technology areas and the financial services sector and import control protected the somewhat weak and capital-starved domestic private sector.

India’s economic liberalization, which began in 1991 exactly 13 years after China went in for a selective opening-up of its market, has loosened much of the government controls over industry, investment and corporate ownership pattern, still provides a lot of room to the government to steer the country’s economic growth. The government and the public sector continue to be largest driver of the country’s economic growth. Although India’s pluralistic society and democratic system may never allow the introduction of the Chinese economic model for growth and distributive justice, the country will make a big blunder if it surrenders its semi-socialistic economic and industrial policies under the pressure of some failing capitalist economies looking for easy access to India’s vast and fast growing market of various goods and services for their survival.

India must carefully craft its next phase of economic liberalization programme and focus on technological capability, infrastructure, strong banking, insurance and investment regulations, agriculture and export capability, if it wants to exploit its full potential to emerge as a leading economic power in the world after China. Stock indices must not be allowed to take an upper-hand on the Indian economy. Most large foreign direct investors are not even members of Indian stock markets. If IBM, Microsoft, GE, Philips, Haier, Mitsubishi, Ford, GM, LG, Daimler Benz, Volvo, Sony, Hitachi, Panasonic, etc. can do huge business in India without paying any attention to its stock market, why should the latter be so important to the Indian authorities to be used as a tool for hot money inflow from foreign investment companies and for cheaply taking over good Indian public companies by overseas competition?

If the growing Chinese economic supremacy is built around economic subsidies, currency control and protection to domestic industry, exports, local jobs, agriculture and export, why should India shun these time-tested socialist growth tools and ignore its domestic agenda to follow the outdated capitalist model built to promote and protect selfish motives, speculation and uneven competition? If the free-pricing of petro-products is causing inflation, hurting domestic industry and the common man, the policy needs to be reversed and the duty structure on these products revamped. Similarly, food, fertilizer and export subsidies must continue until the economy becomes strong enough to withstand their gradual withdrawal.

India’s economic policy must be more concerned with the price and poverty indices than the stock index and the number of its billionaires on the Forbes list. The fabrication and implementation of an exclusive Indian economic model are the need of the hour. Corruption has to be severely punished. The country must stop at all cost the massive flight of private capital and private earning through hawala and other routes. The cost of subsidized food, fuel and fertilizer is rather miniscule if compared with the gigantic loss of government revenue on account of the burgeoning domestic black economy and illegal transfer of funds to outside tax havens by Indians. A confident, competent and socially responsive India alone can command the long term respect and confidence of the external world and of its genuine investors. (IPA Service)

By Brij Bhardwaj

Are we heading for a mid-term election? This has become a subject of debate after Prime Minister Dr Manmohan Singh accused the opposition, particularly Bhartiya Janata party, of trying to destabilise the Government so that the present term of the UPA Government could be cut short and fresh poll held in which the main party in opposition BJP could come to power. An unlikely scenario, but the fact that UPA led Government has suffered several blows and is virtually in limbo at present can not be ignored.

The unfortunate part is that many of the wounds are self inflicted and the UPA Government is suffering not because of what the opposition is doing or has done, but because the UPA leaders in the first instance allowed the former Telecom Minister A Raja to amend twist and flout all norms while granting licences for allotment of Two G spectrum. He not only ignored the advise to follow the auction route while allocating the spectrum which was given at 2001 prices in 2008 but also changed the dates for applications. He also gave arbitrary permissions to companies by allotting them spectrum even after the due date had expired.

In doing so he ignored Prime Minister Dr Manmohan Singh’s advice to make the process of allotment fair and transparent but also paid no heed to Finance Minister P. Chidambaram’s advice to follow the auction route. The Finance Minister and Prime Minister can be accused of not having insisted that the licences issued arbitrarily should be cancelled when the scandal first broke out. What followed subsequently is a sad story of UPA Government of acting only under pressure of Supreme Court and under the onslaught launched by opposition after the irregularities were pointed out in the Comptroller and Auditor General’s report presented to the Parliament.

All through this Government appeared to be doing too little and too late and the result is that the controversy surrounding the scam continues to haunt them even though a former Minister, senior bureaucrats, top officials of industry are behind bars and Supreme Court is monitoring the probe being carried out by the CBI. The question being asked is if this could lead to cutting short the term of UPA Government and a fresh poll. This looks unlikely at present as no political party is ready for elections.

To start with, the main opposition party BJP despite its tall claims is yet to put its house in order to get into election mode and it has no candidate for Prime Ministership. An intense struggle is going on in its ranks for occupying the top place. There are claimants like Gujarat Chief Minister Narendra Modi and old war horse L.K Advani who is about to start on one more Yatra to make his party aware that he is not keen to retire yet from active politics. BJP also is yet to establish itself as a major force in U.P which is necessary for it to improve its strength in Lok Sabha. It is also short of allies as most of them who supported them in their dream run when Mr Atal Bihari Vajpayee was Prime Minister have deserted them.

The situation is no better for UPA. Congress Party continues to rely on Sonia Gandhi’s charisma who is yet to recover fully after she had undergone major surgery. Dr Manmohan Singh who was a winner in the previous poll looks like a tired old man unable to control his Ministers who by their actions have managed to tarnish his image for integrity and honesty. His reputation as an economist who transformed Indian economy through liberalisation has also suffered for his failure to handle problems posed by inflation and rising prices of food items.

Many in the party were hoping that before the poll time, Rahul Gandhi will be able to establish himself in the image of his father and lead the charge when elections are held in 2014 . The young Gandhi made an impact in U.P to start with, but his subsequent attempts at reviving fortunes of party in Bihar or other States have just not worked. As such there is little enthusiasm in the Congress for either change of leadership or going for fresh poll. In addition there is an ever present factor of fear among the members of Lok Sabha who would always like to push the date of elections as far as possible given its uncertainties and expenses involved. So despite some shouting matches on T.V channels, exchange of charges, the prospect of a mid term poll appear to be a distant possibility unless UPA led Government pulls some more surprises and inflicts few more blows to bring about its own destruction. [NPA]