European Economy - An Overview

           Today while I was browsing over the net on European Economy; I found a document titled “European Economic Forecast”. This report gives us a detailed study about status of European economy and International Environment. I also browsed some other materials where I found some information on EU and Euro Economy. The GDP growth rate have been forecasted to 1.7% and 2% for 2011 and 2012 respectively within EU and 1.5% and 1.8% for 2011 and 2012 in Euro Area.

       

          Inflation is projected to average 2% in the EU this year and next, easing to around 1.75% in 2012. For the euro area, a rate of 1.75% is expected in both 2011 and 2012. In forecast a modest improvement is expected with employment growth of almost 0.50% and around 0.75% is in 2011 and 2012, respectively. The unemployment rate is projected to gradually fall, from some 9.50% this year to about 9% by 2012.

         It is expected that (EU as a whole) a deficit of slightly above 5% of GDP in 2011 and 1 percentage point in 2012 as the recovery gains ground.

Is Europe Following India's Footstep?

The term "Flagship" normally denotes a lead ship.  The term has originated from the custom of the commanding officer in Naval who have right to fly a distinguished flag. The term Flagship scheme means the schemes which drive the economy towards faster growth. India is the first country to have flagship schemes. In India, (whoever follows the budget will know that) we have 8 flagship schemes. They are 1. Sarva Shiksha Abhiyan (SSA) 2. Mid-Day Meal (MDM) 3. National Rural Health Mission (NRHM) 4. Integrated Child Development Scheme (ICDS) 5. National Rural Employment Guarantee Scheme (NREGS) 6. Jawaharlal Nehru National Urban Renewal Mission (JNNURM) 7. National Rural Drinking Water programme(NRDWP) 8. Total Sanitation Campaign (TSC).

Now, the Europe has announced an initiative called “Europe 2020 flagship initiative”. They have seven flagship initiatives and they are:

1. Innovation Union: to improve framework conditions and access to finance for research and innovation so as to ensure that innovative ideas can be turned into products and services that create growth and jobs.

2. Youth on the move: to enhance the performance of education systems and to facilitate the entry of young people to the labour market.

3. A digital agenda for Europe: to speed up the roll-out of high-speed internet and reap the benefits of a digital single market for households and firms.

4. Resource efficient Europe: to help decouple economic growth from the use of resources, support the shift towards a low carbon economy, increase the use of renewable energy sources, modernise our transport sector and promote energy efficiency.

5. An industrial policy for the globalisation era: to improve the business environment, notably for SMEs, and to support the development of a strong and sustainable industrial base able to compete globally.

6. An agenda for new skills and jobs: to modernise labour markets and empower people by developing their of skills throughout the lifecycle with a view to increase labour participation and better match labour supply and demand, including through labour mobility.

7. European platform against poverty: to ensure social and territorial cohesion such that the benefits of growth and jobs are widely shared and people experiencing poverty and social exclusion are enabled to live in dignity and take an active part in society. (Source: Europe Commission website)

These seven flagship initiatives will commit both the EU and the Member States. In order to achieve the goals of Seven Flagship Initiatives within the stipulated timeframe i.e. 2020, the Europe Union and Member countries need stronger governance and also need to strengthen the coordination within economic and monetary union. No doubt, Europe is following India’s footstep on flagship schemes/ initiative. But, the success of their Flagship initiative mostly depends on the effectiveness of the governance and coordination within the union.

Should World be Open to do Business with China?

Yesterday, I have read an article from Economist titled "China buys up the world - And the world should stay open for business" Here are few excerpts from it "Chinese buyers—mostly opaque, often run by the Communist Party and sometimes driven by politics as well as profit—have accounted for a tenth of cross-border deals by value this year, bidding for everything from American gas and Brazilian electricity grids to a Swedish car company, Volvo"


The article says that there is opposition for this trend; it states that "The notion that capitalists should allow communists to buy their companies is, some argue, taking economic liberalism to an absurd extreme. But that is just what they should do, for the spread of Chinese capital should bring benefits to its recipients, and the world as a whole."


The article also talks about the rise of mercantalist, it states that "

The rich world has tolerated the rise of mercantilist economies before: think of South Korea’s state-led development or Singapore’s state-controlled firms, which are active acquirers abroad. Yet China is different. It is already the world’s second-biggest economy, and in time is likely to overtake America. Its firms are giants that until now have been inward-looking but are starting to use their vast resources abroad."

It also talks about the investment made by the chinese firms "

Chinese firms own just 6% of global investment in international business. Historically, top dogs have had a far bigger share than that. Both Britain and America peaked with a share of about 50%, in 1914 and 1967 respectively. China’s natural rise could be turbocharged by its vast pool of savings. Today this is largely invested in rich countries’ government bonds; tomorrow it could be used to buy companies and protect China against rich countries’ devaluations and possible defaults. "

The article questions about the domination of china over global capitalism, it further states that "Chinese firms are going global for the usual reasons: to acquire raw materials, get technical know-how and gain access to foreign markets. But they are under the guidance of a state that many countries consider a strategic competitor, not an ally................." 

"The idea that an opaque government might come to dominate global capitalism is unappealing. Resources would be allocated by officials, not the market. Politics, not profit, might drive decisions. Such concerns are being voiced with increasing fervour. Australia and Canada, once open markets for takeovers, are creating hurdles for China’s state-backed firms, particularly in natural resources, and it is easy to see other countries becoming less welcoming too."

The article further states that "That would be a Mistake. China is miles away from posing this kind of threat: most of its firms are only just finding their feet abroad. Even in natural resources, where it has been most active in dealmaking, it is not close to controlling enough supply to rig the market for most commodities."

"Nor is China’s system as monolithic as foreigners often assume. State companies compete at home and their decision-making is consensual rather than dictatorial. When abroad they may have mixed motives, and some sectors—defence and strategic infrastructure, for instance—are too sensitive to allow them in. But such areas are relatively few."


The article takes a stance that "China’s advance may bring benefits beyond the narrowly commercial. As it invests in the global economy, so its interests will become increasingly aligned with the rest of the world’s; and as that happens its enthusiasm for international co-operation may grow. To reject China’s advances would thus be a disservice to future generations, as well as a deeply pessimistic statement about capitalism’s confidence in itself."


I felt this a worth article to read; so I thought of sharing it here.

What is a Currency War?

Recently in many newspaper/ channels we would have come across the term Currency War. What (exactly) is a Currency War? It is a writers term (Currency war),  for economist it is well known as competitive devaluation. It  is a condition in international market's where countries compete against each other in order to achieve a relatively low exchange rate for their home currency, which will help their domestic industry to perish.

Normally at a certain period or given time, any given currency exists in a global markets is determined by supply (how much of a currency exists) and demand (how much investors want to buy goods and assets denominated in that currency).  A country can make its goods and services more "cheaper" (some may say more competitive, because its cheaper) in the global market by devaluing its currency. 


The devaluation of a currency can be made in number of ways, say, from Quantitative Easing (QE) (printing more money - by doing so there will be greater the supply of its own currency, which, would result in the less value it tends to be) to Buying of another Country's Debt (more the demand for another country's currency, the more valuable it tends to be).

QE is a practice, when a central bank tries to mitigate a potential or actual recession by creating money and injecting it into the domestic economy (so that they can avoid inflation once the economy improves). 

QE to devalue a country's currency indirectly in two ways. First, it will encourage the speculators to bet that the currency will decline in value. Secondly, the large increase in the domestic money supply will lower the domestic interest rates, which will become much lower than the prevailing interest rates compared to the countries which are not practicing quantitative easing.

When a country's currency falls in value, its exports usually grow, because its goods and services becomes much cheaper on the global market. Which will benefit the export of the country and boost the domestic as well as the global market and thus achieving economic stability.

(For More info:  click here and for History of Currency War)

(Refernces: Wikipedia and Investopedia)

Quantitative Easing and Developed Countries

        I have read 2 interesting articles today (11th October 2010) in Economist regarding the Quantitative Easing, they are - 1. The magic bullet - How the bulls believe quantitative easing will boost asset prices (Oct 7th 2010) and 2. The Japanese economy - Easy does it - Symbolic moves by the Bank of Japan (Oct 7th 2010) 

      Before going further on these 2 articles let me give definition for quantitative easing. What is quantitative easing? Usually, central banks try to raise the amount of lending and activity in the economy indirectly, by cutting interest rates. Lower interest rates encourage people to spend, not save. But when interest rates cannot be lowered no longer then central bank's only option is to pump money into the economy directly. This is called Quantitative easing (QE).

      The way the central bank does this through buying assets - usually financial assets, say government and corporate bonds. The institutions which sells the assets (either commercial banks or other financial businesses such as insurance companies) will have "new" money in their accounts, which will then boosts the money supply in the economy. Sometimes, the Quantitative Easing literally means printing money, but, nowadays the Bank don't have to literally print the money, because, it is all done electronically. However, few economists would still argue that QE is the same principle as printing money as it is a deliberate expansion of the central bank's in the monetary base. 

        Now coming back to those 2 articles, the First article says that the quantitative easing will boost asset prices. It states that "............ quantitative easing (QE), or creating more money to purchase assets. This is largely presented as a tactic to stimulate the domestic economy by lowering the cost of finance and putting more money into the banking system." 

         The article provides further information that "Over the past two years much of the developed world has attempted some form of QE. (The European Central Bank has done less than its rivals, which may help explain the euro’s relative strength.) Some see this as competitive QE, a game of “I can print more money than you can”. Many investors believe the Federal Reserve will be forced into another round of QE, perhaps as soon as November." It stresses that ".... QE is a kind of magic bullet, helping all asset prices to rise." It concludes that "Although asset prices may be buoyant at the moment, there are other risks ahead. Competitive devaluation is an inherently unstable system. Someone must lose their share of world trade. And a policy of boosting exports can all too easily turn into a policy of blocking imports."

         The Second article talks about Quantitative easing and Japan. It provides the information about how japan is currently facing problem with their monetary policy and how they are trying to adopt quantitative easing in order to get out from the Economic Crunch. The article states that "The effect would be to restart the policy of quantitative easing that Japan used to claw out of its banking crisis between 2001 and 2006. The initial amount under consideration is about ¥5 trillion ($60 billion), ¥3.5 trillion of which is for public-sector debt. That is on top of a sum of ¥30 trillion already budgeted for BoJ loans to banks."
          
         After I have read these 2 articles few thoughts arises in my mind, 1. Is QE is really a solution for the Economic Crisis and failure of Monetary Policy? 2. Whether QE will really boosts the asset's price? 3. If QE is used by an economy, then whether it's impact in the Exchange rate will be higher or lower? I am still looking for the answers for these questions.

BASEL III - An angel or an Evil?

On 12^th September, 2010, the World’s Financial (Authority – so called) watchdogs hammered out the new rules during last week in order to stop banks from causing another financial catastrophe. But few economists, analysts and even some bankers are feeling that the agreement (Basel III) won’t prevent any financial calamity.

Before going further let me give a brief on BASEL Committee. It is a committee which is formed on Banking Supervision - forum for regular cooperation on banking supervisory matters. Its objective is to enhance understanding of key supervisory issues and improve the quality of banking supervision worldwide. It seeks to do so by exchanging information on national supervisory issues, approaches and techniques, with a view to promoting common understanding.

 The Committee is best known for its international standards on Capital Adequacy, the core principles for effective Banking Supervision and the Agreement on cross-border Banking Supervision. (History of Basel)

 Now coming back to BASEL-III (yes, already BASEL – I and Basel - II are implemented), on 12 September 2010 meeting, the Group of Governors and Heads of Supervision, the oversight body of the Basel Committee on Banking Supervision, announced a substantial strengthening of existing capital requirements and fully endorsed the agreements it reached on 26 July 2010. 

Before going further, let me say one thing that the Bank of International Settlements claimed that they had succeeded in the implementation of Basel II norms. But, under the Basel II agreements/ arrangement, all banks were required to maintain particular capital adequacy ratios (CARs). This is to ensure that the banks have sufficient capital and allow them to meet all demands from depositors and also to cover the losses, if a borrower defaulted on their payments. But Basel II, had a misconception, that it would ensure the banking system from collapse or from any financial catastrophe.

The Basel III Committee's package of reforms will increase the minimum common equity requirement from 2% to 4.5%. As per Basel III norms, now banks will be required to hold a capital conservation buffer of 2.5% in order to withstand stress/ calamity in future periods which brings the total common equity requirements to 7%. The higher capital requirements for trading, derivative and securitisation activities to be introduced at the end of 2011. 

The interesting thing is many people started debating about Basel III from now itself, which is too early to say because the rules won’t come into effect until 2019 (9 years from now). And many think that it will be too late and it would provide very little by the time when it gets implemented. 

Bernard Baumohl,chief global economist (The Economic Outlook Group) said to newsweek that "We could very well have one or two more crises before these rules even come into play". Its too early to say whether BASEL III is an angel or evil? we can (ofcourse need to) see how it functions only when it comes in operation.   

Has China Overtook Japan???

Today (17.08.2010) when I was browsing the Economist website found 2 contradict statements. One states that "China's economy overtakes Japan's in real terms" and other States that "Japan overtakes China as the world's third largest economy". The beauty is both the Articles are published on 16th  August 2010. 

Later I went on to do some research regarding this and found that Japan’s nominal Gross Domestic Product for the second quarter was $1.288 trillion which is less than China’s  $1.337 trillion. During the first quarter(first half of 2010) Japan remained bigger than China. Japan’s annual GDP is $5.07 trillion, while China’s is more than $4.9 trillion as per official data. 

It is believed that by some estimates China’s quarterly output actually overtook Japan’s in nominal (US dollar) terms in the fourth quarter of last year. Since the last quarter China has continued to grow rapidly while Japan’s recovery has stalled (due to weak policy framework and outlook?).

In terms of purchasing power parity, China replaced Japan as the world’s second largest economy nearly 10 years back. As per the world bank data 2009, China GDP - PPP is $ 8,887,863 million and Japan's $ 4,138,481. China’s economy also moderated from 11.9 per cent year-on-year growth in the first quarter to 10.3 per cent in the second.

As per Monday’s (16.08.2010) data the deflation remains entrenched in the Japan economy, which prevents people from spending as they expect prices could fall further. The Nominal growth dropped by 3.7 per cent annualised in the second quarter after two quarters of positive growth. In Japan, weak growth in the second quarter has raised questions about the strength of its economic recovery. 

Japan’s slow growth is due to the stalling on consumer spending, falling public investment and slower exports. Net export growth slowed but remained solid and was the main contributor to growth.

But still Japan is relatively richer than China in terms of Per Capita Income. According to world bank ranking Japan is ranked at 39 ($ 33, 280) and China (main China land - excludes Hong Kong SAR, China & Macao SAR, China) is ranked at 120 ($ 6,710)

This arises few questions 

1. How much one can rely on China's Data?  It is believed that the current Data are not strictly comparable because the Japan's data have been seasonally adjusted while China's data have not. 

2.  If China has really overtook Japan's economy in real terms, then how much their overall GDP growth (real GDP) will be this year?

3. How Japan is going to handle crisis (or) crunch in their economy after having positive growth rates in 2 consecutive quarters? 

Can Emerging Countries handle Inflationary Pressure?

Recently I have read an Article titled “Inflation: The Great New Divide - Capital from the low-growth West fuels price increases in Asia” by Peter Coy. In this article he clearly expresses his views on how Emerging countries are facing Inflationary pressure along with pressure of the role of locomotive to the Global Economy. He also clearly states that how India and China is playing a major role of locomotive to pull the Global Economy out of recession.


In this article he states that “For most of the post-World War II era, the U.S. was the locomotive that pulled the global economy out of recessionary valleys. This time it has been emerging-market nations, mostly Brazil, China, and India that have surged, carrying the U.S. along like a big, fat caboose. Exports accounted for a little more than half of the growth the U.S. economy managed to generate in late 2009 and early 2010, according to data compiled by the Commerce Dept. About 40 percent of U.S. exports went to emerging markets”


He fears that the “…. inflation in emerging markets—and near-deflation in developed economies—could slow the growth train”. In context of India and China he states that “Chinese and Indian policymakers are trying to cool things by curbing government spending, raising interest rates, or both. If they accidentally crack down too much, they won't be able to play the role of locomotive. That would be a blow to a U.S. economy that is already threatened with a pause or, at the extreme, a double-dip recession.”


Regarding Japan and Europe economy he expresses that “…. at risk are Japan and Western Europe, which, like the U.S., are wealthy but slow-growing and facing deflationary pressures”. According to Economist Dr. Edward Yardeni (in an interview with Bloomberg Businessweek) "The inflation problem is in exactly the countries you don't want an inflation problem"


Peter coy further states that “The accompanying graphic tells the story of a divided world. On the right are large, light-colored bubbles representing India, China, Turkey, and Brazil. These are countries with relatively low incomes, rapid economic growth, high inflation rates, and increases in inflation over the past year. The other prominent cluster is the wealthy nations in North America and Western Europe, plus Japan and Australia. They have higher incomes, slower growth, lower inflation rates, and smaller increases in inflation. Japan (diamond-shaped) is the only country suffering outright deflation. Russia's big drop in inflation makes it an outlier, befitting its halfway position between the rich and poor nations”. At the end of this article he gives a punch with a statement “The Bottom Line: The world economy is evolving into inflationary and near-deflationary zones. Emerging markets must slow down without crashing”. (For Full Article: http://www.businessweek.com/print/magazine/content/10_32/b4190010426918.htm)


It is true to that Emerging Economies are facing Inflationary Pressure and Developed nations are facing Deflationary problems. Dr. Edward Yardeni Rightly said in his interview to Bloomberg Businessweek that "The inflation problem is in exactly the countries you don't want an inflation problem".


Now, the Major worry is that if these Emerging Economies fail to handle the Inflationary Pressure (in an appropriate manner) then the entire global economy may fall into another Depression (yes, not mere Recession). One can be sure to certain extent that it may not happen in such manner because these Emerging Economies are well known for their policymaking ability. But, we need to watch how they tackle the current problem of Inflation without affecting their growth rates and their role of locomotive for other countries across the globe.

Will RBI be Autonomy Body?

During Budget Speech our Finance Minister announced that there will be autonomous body called Financial Stability and Development Council (FSDC). He also further stated that - This body will be responsible for financial stability and also will deal issues and disputes pertaining between financial regulators. It is believed that this will be headed by the Finance Minister (FM) himself, which is expected to be an advisory body. He did clarify that FSDC will not act in any manner prejudicial to the autonomy of the current set of regulators.


Regarding this recently many articles where published about questioning on this FSDC. The article which is published in the website of gfilesindia written by GS Sood gives a clear structure of the FSDC. It stated that “It will be multi-layered. The council’s members will include the heads of financial regulatory organizations such as RBI, SEBI, IRDA, and PFRDA. In addition, the Finance Secretary and chief economic adviser of the Ministry of Finance will also be members of this council.”


It further stated that “The council will have two committees working under it, namely the Financial Sector Regulatory Co-ordination Committee (FSRCC) and Financial Sector Reforms and Stability Committee (FSRSC). The composition of FSRCC, proposed to be headed by the RBI governor, will be similar to that of the High-Level Committee on Capital Markets. That, in effect, means that all the regulators will be its members. The second committee, FSRSC, will be headed by the Finance Secretary and all the regulators will be its members other than the RBI Governor. The Deputy Governor of the RBI will be a member. The Finance Minister has been advised to establish a permanent secretariat for FSDC.”


He further added that “FSDC seems to have become a power game between the bureaucrats in the Ministry and those in the regulatory agencies. The bureaucrats in the ministry would love to shift the Centre of gravity of power away from the regulators to the Ministry. Despite all FM’s good intentions, FSDC would end up becoming a draconian super boss, given the games bureaucrats play especially when the Minister is as busy and burdened as is the FM.” (For full article: http://gfilesindia.com/title.aspx?title_id=111).


On Thursday (08-07-2010) many would have read in news paper that “RBI moves Finmin to secure autonomy”. The news states (excerpt) that “The Reserve Bank of India (RBI) has urged Finance Minister Pranab Mukherjee to allow the Securities and Insurance Laws (Amendment and Validation) Ordinance 2010 to lapse, since it could affect the autonomy of all regulators, including the central bank. The ordinance, promulgated last month, will automatically lapse if the government does not bring a bill to this effect in the monsoon session of parliament. In such a case, the existing High Level Coordination Committee (HLCC) on Financial Markets, headed by the RBI governor, will remain the nodal authority for coordination among regulators.”


There are few questions which arises on the formation of FSDC, they are 1) Can FSDC will be able to avert scams like Harshad Mehta’s & Satyam? 2. Who will head FSDC, the Minister or a bureaucrat or Governor of RBI? 3) If FSDC becomes the super boss of financial markets, what will be the role of Financial Regulatory Bodies (esp. RBI)? & the most important question is 4) Do India really needs FSDC?


There are different views among Economist and Financial Analyst regarding the formation of FSDC. An important thing, we should remember is, our Central Bank (RBI) have a world reputation for its Monetary Policy and Financial Stability. Now the question is whether the RBI will remain the Apex and Autonomous Body for the Financial Markets?

IIP, INFLATION and BASE YEAR

Last week many would have read or listen in news that IIP index had bettered than expectations to increase at 17.6% in April. Creating a 20- Year high achieved due to increase in consumer demand, revival in exports and higher infrastructure spending. This 17.6% (General IIP) higher is as compared to the level in the month of April 2009. Another important thing is this growth (Year on Year) is much higher compared to 2009-10 (1.1%) and 2008-09 (6.2%). When it comes to manufacturing sector alone then it had a tremendous growth in April 2010 of 19.4% over the 0.4 % in April 2009-10 and 6.7% in April 2008-09.


Another Important thing appeared in the news is Food Inflation again raised marginally to 16.74% in the week ended May 29 marking second consecutive week rise. The annual rate of inflation (calculated on point to point basis) of Primary Articles stood at 17.21 percent (Provisional) for the week ended 29/05/2010 over 30/05/2009. The annual rate of inflation (calculated on point to point basis) of Fuel, Power, Light and Lubricants stood at 14.23 percent (Provisional) for the week ended 29/05/2010 (over 30/05/2009) (Source: Economic Affairs).


In March, CSO announced that they will follow the 2004-05 as the base year for price index and they also said they will have 250 new items in WPI to provide more realistic picture of price rise and its impact on people. They also said that a new wholesale price-based index for measuring inflation would be rolled out from May 14. But the fact and reality is till date we don’t find new WPI with the base year 2004-05, we are still following 1993-94 as a base year.


There are 2 questions which arise in my mind. 1. Since we are calculating the WPI with the base year 1993-94, it is really a big question whether this inflation rate shows the real picture of the Prices and its impact on People. 2. Why CSO is unable to adopt the new price index as they said from May 14? The base year 1993-94, is not only for Inflation index but the same is used for IIP also, until the new base year comes into existence it is difficult to say whether these data’s gives us the real picture of the economy.

INDIA, IMF & EXTERNAL DEBT

         Few days back one of my friends and former colleague (Mr. K. Shreedhar) was telling his review over my blog. At that time we were also discussing on India’s growth story. Next day he had sent me a link with the headline that “No impact on Fisc as India lends to IMF” - FE (Full article link: http://www.financialexpress.com/news/No-impact-on-fisc-as-India-lends-to-IMF/630299/ ) and said the story has just begun. The article states that “For India two decades after liberalisation, one of the biggest (and relatively unsung) shifts has been that she has turned into a lender country to the IMF.” No Doubt, this is one of the most unsung glories. When I read this news I was happy initially, but, suddenly this made me to think whether our Foreign Debt has been reduced; if so, to what extent? etc… So I have done some research to find out certain things.
         
          Recently many would have read in news papers that “India’s External Debt’s rises by 11.9% at end of December 2009”. Many of the People might think what is the relationship between External Debt and India’s lending money to IMF. There is a relationship between the two; in 1989-1991 we went to IMF for loan because of the external debt. I felt like seeing the GDP ratio of External Debt from 1990-91 where I found that our GDP ratio to External debt has declined but not to a great extent. In the Year 1990-91 our external debt to GDP was 28.7% while in the year 2008-09 (Revised Estimates - RBI) is 21.4% which is 25.44% decline in the Foreign Debt over 17 years.


           Many people may think that the 21.4% is higher but the fact is we are better than many nations. Among the BRICS Nations India’s external debt is third lowest after South Africa (16%) and Brazil (19%). China’s External Debt is much higher than India (41%). Compared to developed nations we are much better, the following list shows the % of GDP of developed nations (Source: Wikipedia)


Country                  % of GDP


United States             94%
United Kingdom      416%
Germany                 155%
France                    188%
Netherlands             470%
Spain                      165%
Italy                        101%
Ireland                  1004%
Japan                       42%


              Then what is the one of the India’s real problem now. The most worrying part of INDIA is it's Fiscal Deficit, which is  around 78% of it's GDP.

India's economy rebounds with rapid growth!!!!!!

Yesterday fourth quarter results have been announced and many of the People would have been surprised on hearing the news "India's economy rebounds with rapid growth rate of 8.6%" "8.6% surge in Q4 boosts '09-10 GDP growth to 7.4%" - TOI "India's Q4 GDP grows at 8.6% y-o-y" - ET . Along with this they have mentioned that Manufacturing sector helps to drive quarterly growth rate to 8.6%. The farm sector has grown by 0.7 per cent, manufacturing grew by 16.3, mining sector grew by 14 per cent and service sector grew by 8.4 per cent in the fourth quarter of the last fiscal year (i.e. 2009-10). This 8.6% growth in the Fourth Quarter helps the economy to grow to 7.4% in entire Fiscal Year (2009-10). The first three quarters of the last fiscal (2009-10) grew at 6.1 per cent in Q1, 7.9 per cent Q2 and sluggish of 6 per cent in Q3. Yesterday the Q3 estimate is again revised to 6.5 percent from 6 per cent.

Now let us put this growth story aside for sometime. Let us look at the inflation story which is still worrysome despite of fall in Inflation rate. India's food inflation rate eased slightly to 16.23 per cent on May 15 from 16.49 per cent in the previous week. Reserve Bank of India (RBI) Governor Mr. Duvvuri Subbarao said on Tuesday that "Inflation is not at peak level. It is still higher than we would like it. We would take inflation concerns along with growth (while formulating monetary policy)" India's annual wholesale inflation was at 9.59 per cent in April, coming off from a 16-month high of 10 per cent in February. (source: netindia.in).

Despite of 7.4% growth rate we still have few questions which need some answers. Whether Growth Rate implies improve in Standard of Living of the People? When the inflation rate will become more stable? How a comman man can be benefitted from the Growth rate? Is governments inclusive growth is a reality or myth? It is not at all easy to answer any of this questions. These are the basic questions which goes in the mind of every comman man irrespective of his knowledge in economics. But it is hard to provide any answer. Suddenly another question props up - Whether this growth rate will continue, if it continues then whether it can eradicate poverty to certain extent? Is there any realtionship between Growth rate and Poverty eradication? Again no answers for this question from me. Can anyone explain or give some answers for any of my questions. I would be glad to hear your views.

Swiss Bank Accounts and India

Today when i was browsing some newspaper websites i got some interesting information, followed that i have done some finidings too. But here is the News Headlines along with the link where you can access full news on which this post is about.

Headline: Swiss banks' love for Indian clients no secret, woo back depositors who withdrew funds on fear of action: http://economictimes.indiatimes.com/articleshow/5983262.cms

The intersting fact is that despite of saying India is a Developing Country (some westerners still feel its poor country), Indians have more accounts in Swiss Bank than any other nations. Recently, i have gone through few articles in one of which they have provided the TOP Five Countries which have Swiss Bank Accounts. According to the Swiss Banking Association report of 2006-- India topped the world, the Top Five are as Follows (source: ET, 10 october 2008, article titled Money lying in Swiss banks may hit markets via P-notes
by Mandar Nimkar),

The Top five
India—- $1,456 billion
Russia —$ 470 billion
UK ——-$390 billion
Ukraine - $100 billion
China —–$ 96 billion

(Note: SWISS Bank have more than 55% of Foreign Clients rather than Domestic Clients.)

INDIA should think seriously and take some neccessary action. It is believed that this amount is 13 times larger than our countries Foreign Debt. Despite of just saying that we are one of the fastest developing nations and aiming at 9% growth rate, we should also seriously think about tax evaders and tax cheaters. If we can do something on this (even atleast say 50%) then we can achieve more faster growth rate and can have better development in INDIA.

Sugarcane Production - Bihar

Recently, i have talked to one of my friend and colleague who is from Bihar. I enquired her about why the sugarcane production became less in Bihar? Then i got some interesting facts, she said that "In bihar, from 1980's when the adverse law and order situation started, from that time onwards, many sugarcane mills have started closing down. Most of sugarcane mills have shut down due losses. Due to shut down of many mills except few Government mills many people stopped the sugarcane production because the demand for sugarcane have been drastically reduced. This was the major reason why sugarcane production in bihar have been reduced." So, now we have got some idea why total production of sugarcane was 20 percent before independence and have now drastically fallen to only mere 3 percent in Bihar.

New Vaccine for Swine Flu

Finally India have produced its own and New Vaccine for Swine Flu. Pune-based Serum Institute of India (SII) has developed a H1N1 vaccine which can be used by anybody above the age of three except pregnant women. It is expected to cost around Rs 150. Another interesting thing about this breakthrough is, it came exactly 1 year after India reported it First case of Swine flu.

This is one of the positive development in INDIA in the field of Vaccine production. We may hope to have more Production of vaccine which INDIA need to have its own.

Bihar - Fastest developing state???

Many People would have read in Newspapers, websites or may be heared in TV news recently that (it came as a Surprise for almost everbody) "Bihar is the Second Fastest Growing State". In 2008-09 it had a growth rate of 11.44%. Seeing the growth rate of Bihar even the CSO remarked that "Bihar is the new miracle economy of the country". Some Economist doubt the Data / Stats of this growth rate.

Recently i had a conversation with some of my friends and some third persons who are from Bihar. They said that no doubt Bihar is developing well. One of them said "In Bihar, the education system is also improving now. Especially, Girl students get some monetary benefits also for once in a 3 months time."

Today when i browsed the news there found an interesting headline "Lessons to be learnt from Bihar, says Bill Gates" when this came to my view i haven't surprised because before this i had already heard more positive things about bihar. I like to quote few things which Bill Gates said to some newspapers as follows:

"It's amazing how the state's immunisation rates have suddenly shot up from 11% to 60%. I never expected it. There is definitely some lessons of best practices to be learnt from here," he said.

"In 1960, 20 million children used to die. Last year, 9 million died. What do you think caused the dip even though 40% more children are born now every day? Vaccination. Better nutrition is the second factor but vaccination against new diseases is by far the most effective intervention," Gates said. "India hasn't introduced a single new vaccine since 1985. India should seriously consider using the pentavelent vaccine in its immunisation programmes

Narrating a personal story, Gates, whose foundation has given $1 billion to India alone for health projects, said, "Once, I showed my daughter a video about polio and what we do. Watching, she asked me what happened to the crippled girl in the film and how did we help her? I didn't know. I realised we talk about numbers and maps and eradication targets. But what about the real people? It is interesting to see the world through the eyes of children"

I felt initially since its about bihar, why should i put the second 2 quotes? but, later felt that this may be useful for someone (Dont have any idea to whom - :) ). Two interesting thing, which i would like to point out from Mr. Gates saying is that :

1 . "India hasn't introduced a single new vaccine since 1985. This is not only the surprising one, the other thing is still INDIA haven't produced any medicine for FLU (for any FLU).

2. I realised we talk about numbers and maps and eradication targets. But what about the real people? It is interesting to see the world through the eyes of children" This is one of the most important point, what about the Real People? and the Most beautiful Point in this is "It is interesting to see the world through the eyes of children"

This is one of the reason why i have put the last 2 quotes eventhough it doesn't matters with Bihar. This may make us to think and do things little differently.

I think atleast now few people who don't believe the CSO's data and Media report will believe Mr. Bill Gates words (will not be surprised even if they say that he is lying to make money for his foundations). I always have a strong belief that if INDIA has to Grow faster and become well Developed nation then it can happen only when States like Bihar, Arunchal Pradesh Prosper. I have strong belief that Bihar is a vital force and may become a driving force too for INDIA's Growth in future (Many of them may be surprised or even think this is ridiculous, but that rarely matters).

One Interesting think to point, not positive this time, about bihar is that their total production of sugarcane was 20 percent before independence which have now drastically fallen to only mere 3 percent. I would definetely like to know the reason for this, if anyone knows the infomation about this then kindly let me know (will also try to find out about it).

"Greece Crisis - Bailout - Is it worth?" - Greece May Survive, But the Bailout Won’t Help It Heal

This is in continuation of the Posting "Greece Crisis - Bailout - Is it worth?". In this posting there arised few questions whether this bailout will helpful? Whether Greece will survive? Interestingly, today i have read an article on Newsweek, which was publised on 10th May 2010 by Stefan Theil.

The last para of article is as follows: "Not talked about much, but at the heart of all this is the festering problem of Europe's banks. Unlike the U.S. and U.K., major Eurozone countries like France and Germany have to this day refused to subject their banks to stress tests, or provide for any kind of transparency about the true health of their financial sectors. According to the IMF, a larger share of bad assets is still hidden on the books of European banks than American or British ones. (Those bad debts are a source of embarassment to Europe's politicians, as they are likely concentrated in state-owned banks.) If France and Germany were more transparent about who owns which shaky government bonds, it would be far easier to calculate and prepare for the effects of, say, a Greek government bankruptcy, which unlike a banking crisis is a fairly straightforward problem for a financial system to resolve. Instead, because Europe still refuses to go public with the lingering problems of its banks, each impending crisis brings more uncertainty and the threat of systemic failure. Because politicians and regulators refuse to shed light on their banks, this crisis will likely linger"

You can read this full article here -
http://blog.newsweek.com/blogs/wealthofnations/archive/2010/05/10/greece-may-survive-but-the-bailout-won-t-help-it-heal.aspx

Austerity Measures - everywhere around Europe!!!!!!!!

If you see any newspapers today on world economy, then you can notice one important thing, that is, Austerity Measures - everywhere around Europe. After the Greece Crisis, all other european nations (including England) are very much alerted on the Fiscal Debt of their Nation.

Spain unveils billions in deficit cuts to halt eurozone crisis fears. Spain will slash public spending by €6bn and cut civil servants' by 5pc salaries this year as part of a plan to ease fears the country could slide into a debt crisis like that of Greece.Spain's Prime Minister Jose Luis Rodriguez Zapatero ordered a five percent pay cut for public workers as it ordered tough austerity measures in a bid to slash the national debt. Premier Jose Luis Zapatero told a stunned nation that public sector pay will be reduced by 5pc this year and frozen in 2011. "We must make an extraordinary effort," he said. Pension rises will be shelved. The country’s €2,500 baby bonus will be cancelled. Aid to the regions will be slashed and infrastructure projects will be put on ice. Mr Zapatero’s own monthly pay will fall 15pc to €6,515.
(Source: http://www.telegraph.co.uk/. )

While Spain is on Five Percent pay cut for public workers, Speaking at one of the four press conferences he gives a year, Mr King said that cutting the deficit is the 'No. 1' issue and that he had advised the George Osborne, the new Chancellor, this morning that the cuts should start this year. Some excerpt from telegraph - Bank of England (BOE) Governor said that "The lesson from Greece is that the deficit is the 'No. 1' issue" The Governor of the Bank of England warned that the next few years are going to be 'painful', as he welcomed the new government's plan to tackle the deficit this year. "The lesson from Greece is that the problem had been dealt with three months ago it would not have become as serious as it subsequently became," Mr King said. "The crucial thing is to prevent contagion from Greece to other euro-area countries. But those measures only provide a window of opportunity."

Now, despite of so much alert over the Debt crisis and Austerity measures will Europe survive from the crisis? Another big question is how long the EURO can survive? It’s really a big testing time for European Union to maintain it’s stability within their Union Economies. It will not be surprising for me at all when i hear the news that "EURO fails or Dissolved". Ofcourse, it still very early to say anything like that, only time can provide answer for all these questions.

Greece Crisis - Bailout - Is it worth?

The GREECE Crisis is becoming much more worse day by day. Recently, many economist started comparing this crisis with Argenitina's Default Crisis (1999-2002).

Recently IMF and European Finance Ministers Agreed to bail out Greece. Many countries were Unhappy with the Decision of IMF, since, Greece is not facing the Balance of Payment problem, rather, It faces huge Fiscal Debt. Many Economist feel that whether this bail out package is really worth? Whether this will stop the Greece from becoming Default? Now, Greece have also started adopting austerity measures, but, whether it will work? and more importantly whether Greek will walk out of EURO?

Well recently, Paul Krugmen in his article in NY Times (dated 6th May 2010, said that " The bad news is that Greece’s problems are deeper than Europe’s leaders are willing to acknowledge, even now — and they’re shared, to a lesser degree, by other European countries. Many observers now expect the Greek tragedy to end in default; I’m increasingly convinced that they’re too optimistic, that default will be accompanied or followed by departure from the euro".(For Full Article you can read - http://www.nytimes.com/2010/05/07/opinion/07krugman.html)

We need to wait and see whether the Greece bailout package is worth or it will default!!