UN predicts global financial turmoil

UN Headquarters. (UN Photo/Andrea Brizzi)

Political changes apart, rural Indians may see more discrimination

The global economy is stagnating and income inequality is increasing concerns over growth as India enters vibrant political phase and pines for economic direction.

The phase is important and critical. The world economy stagnation in 2019 and 2020 as per UN’s prediction in its World Economic Situation and Prospects (WESP) 2019 has ramifications for India. Its efforts for economic recovery would be affected impacting its future budgetary provisions.

Will India’s political wisdom be able to address that? Would a Congress trying to fight on ‘front foot’ with Priyanka Gandhi being formally launched as AICC general secretary, and Rahul Gandhi as a sober campaigner be able to make difference? The crucial question – whether the Congress has a vision beyond Manmohanomics.

The Manmohanomics in 1991 did one good thing. It ushered partly in practice, more in theory, an era of liberalisation. The 1991 path has been followed willy-nilly by all successive governments, irrespective of the political colour.

All finance ministers after Manmohan Singh, followed his path. That was good – as there was a predictability of the course. But with years the supposed liberalisation that was talked in 1991, got lost somewhere. It has lead to a firmer grip by the bureaucracy or the government itself of the course and lives of the people and their businesses.

This has led to a certain level of GDP growth but the social distribution of wealth has been convoluted leading to severe concentration of wealth, as per OXFAM in 1% people and the growth of wealth of the multitude in most cases either has been minimal or reduced. The worst has happened to the daily wage labourers. Their earnings came down.

The WESP has noted the trend happening in different regions. Though it predicts a 3% annual growth till 2020 globally, but sees deceleration to 2% in the EU and the US, “as the impulse from fiscal stimulus in 2018 wanes. The Brexit or not has shaken the European economy”.

China is slowing down to 6.6%. Several parts of Africa, Western Asia, Latin America and the Caribbean are likely to see incomes stagnating.

Without mentioning India, WESP says, “Even where per capita growth is strong, economic activity is often driven by core industrial and urban regions, leaving peripheral and rural areas behind”. This is happening in Indian farms and rural areas. The political fall-outs marked the recent assembly elections.

The global slowdown has impact on Indian exports and can cause domestic discontent.

Peculiar to Indian scenario, the WESP says, there “is a confluence of risks with the potential to severely disrupt economic activity and inflict significant damage on longer-term development prospects. The risks include waning support for multilateral approaches; the escalation of trade disputes; financial instabilities linked to elevated levels of debts; and rising climate risks, as the world experiences an increasing number of extreme weather events”.

The prediction is pessimistic. India is suffering many of these. The growth is not being reflected in people’s happiness. That is the greatest challenge to the political contenders for the 2019 elections.

So far, no political party has shown that they have a grasp of the situation. Instead all of them are in a wilderness failing to understand the crisis.

The Indian voters need an answer. The opposition is vocal that the BJP does not understand it. True or not, do any of them understand? The recent assembly polls brought to the fore not only the crisis but also that if a Telangana government had brought a half-baked solution for increasing farmers’ income by paying them Rs 4000 (now Rs 5000) per acre of their hold, all others are considering this as an instant vote-catching mechanism.

The announcement of Priyanka Gandhi leading eastern UP, once a Congress citadel has warmed up politics. One would have liked to see if there was a firm economic pattern also. No regional or national party has shown that vision, concept or wisdom.

The parties are suffering from myopia. They have lost sight of the fundamental problems. Competitive rhetoric is raising doubts. People are in a quandary. They do not find a solution to joblessness, underemployment and falling incomes and a continuous rising inflation. The governments have lost will and control to correct the situation.

So the UN chief economist and assistant secretary-general Elliott Harris says, “Alongside various short-term risks, there is an increasing urgency to deal with much more fundamental problems”.

He does not find sustainable development goals being achieved or poverty elevated till 2030. So does not political parties in this country. They are busy in caste politics, religious divide and raking up parochial issues. All lead to ignoring the 2030 SDG goals. India does not seem to have yet found the path.

A country that was once led by its own economic wisdom of Chanakya, that followed Gandhian principles, Marx, Engels, socialism or Keynes, and now the market economy or Deen Dayal Updhyay’s integral humanism, today finds all of these have failed and now they do not have a model to follow.

The governments are only tightening financial conditions through the banks and other instruments of taxation or interest rates. The UN says it can lead to financial turmoil.

The WESP says “as global financial conditions tighten, an unexpectedly rapid rise in interest rates or a significant strengthening of the US dollar could exacerbate emerging market fragilities, leading to heightened risk of debt distress. This risk can be further aggravated by global trade tensions, monetary policy adjustment in developed economies, commodity price shocks, or domestic political or economic disruptions.”

That exactly is happening here. Large external financing needs and limited policy buffers are particularly vulnerable to financial stress.

Often it is said that the country should spend more on research. It is doing. Its research investment in theoretical non-productive research has grown phenomenally. Universities are producing more doctorates. But fundamental thinking is eluding.

This leads to uneven economic growth. The fears of incomes stagnating further would be real. It says double digit growth is required. That is also not a solution. Growth and amelioration of conditions are not synonymous.

So the government may continue or change for the present, ground realities may be disturbing and solutions half baked. Income inequality, as feared by the UN, is likely to aggravate. For a solution there has to be dialogues and political leadership has to be sagacious. A tall order!

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