India and Global Economy

“The implementation of the pay commission proposals and its effect on wages and rent, will also be a factor in Reserve banks future deliberation, though its direct effect on aggregate demand is likely to be offset by appropriate budgetary tightening as the government stays on the fiscal consolidation path.” Clearly RBI hires people on their ability to prevent using a full stop. Understanding the present situation is not easy. So here are some of my observation and notes which will help all of you to understand the past, present and future scenario.

In 2009 USAs recession ended, till then emerging economies had supported the world economy and given hope for a brighter future. Today all emerging economies are in a sad condition specially BRICs. Russia and Brazil have a negative growth rate. Let me explain how devastating this situation is. Everyone wants higher standards of living every year. You expect a new car or phone each year. You don’t aim to sell your house and live with Tarzan in a jungle, you crave for more each year. So if the GDP is a circle then the radius increases to absorb the effects of high standards of living. If radius decreases, as in the case of Greece then the situation becomes disastrous. But as of 2016 the Greece bomb has been diffused by EU. So the European economic domino effect is prevented as of now. Now the leaders of EU can finally go to dominoes without any tension.

Today China has a forex reserve of $3.5 trillion. This is both advantageous and disadvantageous. China now has the ability to play games (If you understand what I mean). But the disadvantage is that the money has to be invested. China has no choice but to invest in USA as it is the safest market. Xi Jinping should give his wife some time too because as we just saw money can’t buy him happiness.

 

Now let us look at some statistical data.

Global Economic Power Share

Year              1st position                                          2nd position                                        3rd position
1870             United Kingdom-16.7%                    Germany-9%                                     France-8.3%
1973             United States of America-18.6%     Japan-8%                                          Germany-8%
2010             United States of America-13.3%     China-12.3%                                     Japan-6.9%
2030             China-18%                                           USA-10.1%                                       India-6.3%

But don’t look at it plain vanilla, if you look at the future in terms of per capita income then India is in the bottom 15 not the top 3.

GDP(PPP)- $8 trillion (#3)

PCI(PPP)-$6209(#124)

Shocking? Well Indian economy will bloom but Indian PCI will not grow no matter what one does. It is a very sad fact but it is true. Things may change after 2060 because then the fertility rate is expected to drop. So the prognosis is situation will improve as apposed to the diagnosis.

As far the RBI is concerned Mr. Raghuram Rajan is managing the RBI well. It is obviously wrong for us Indians to blame RBI for all negative things happening in India. The government is to be blamed equally. As in the case of increasing income for more than 10 lakh government workers.

The biggest challenge in India and globally has always been to translate GDP growth numbers to ground level. This statement is just food for thought tell me in how many ways could you interpret it in the comments section.

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