Perfect Storm - The Giant Rogue Wave

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RealTime Economic Issues Watch | Youth Unemployment in Europe: More Complicated Than It Looks

RealTime Economic Issues Watch | Youth Unemployment in Europe: More Complicated Than It Looks

WORKING PAPER 09-11: The Impact of the Financial Crisis on Emerging Asia

WORKING PAPER 09-11: The Impact of the Financial Crisis on Emerging Asia

Op-ed: The New Indian Politics: No Slowdown, No Panic

Op-ed: The New Indian Politics: No Slowdown, No Panic

The Spectre of No Reforms !

The Specter of No-Reform The specter is hunting Indian ruling classes. That is the specter of no further reforms. This is what crossed my mind while I am gluing to the TV channels on the day the Honorable Prime Minister addressed the nation and the panel discussions that were followed the Address. After carefully following the Prime Minister Manmohan Singh’s Address to the Nation, I felt that in the name of cautioning the people from getting carried away by misinformation campaign, the government itself unleashed such a campaign at the national level. The whole logic of the Prime Minister, well prepared by a team of properly qualified economists, ask us to believe that the rapid growth is required which will increase the government resources and in turn those resources will be spent to embark upon the inclusive growth trajectory. Let me come back point by point. Encouraged by the Prime Minister’s vitriolic, his argumentative cabinet colleagues such as Kapil Sibal and Salman Kursheed, Chidambaram are on the high way gunning for the heads who opposes the recent measures. Now it is clear that the UPA – II came under pressure from domestic and international pressure groups that are self styled ‘ Think Tanks’ which played their role in molding the opinion with in the policy circles who are hesitant to proceed with the reforms with pace. The neo-liberal think tanks asks to believe that unless the government goes for overhauling reforms, the country won’t sustain its course of development and has to face the 1991 like situation or a situation similar to that of European Union nations. First of all, the so called inclusive growth trajectory which became a campaign slogan for UPA during the 11th Plan failed in showing the desired effect. At the outset, the inclusive trajectory, after considering all the plans to expand the financial markets, products, financialisation of economy, is merely in the direction of expanding the clutches of finance capital on day to day life. Except this there is no other reason in substituting the food subsidy and fertilizer subsidy with the cash transfers. This change necessitates the beneficiaries to get involve themselves with the financial products that will surely circumvent the advantages of being in the net of financial inclusion. Another point also needs to be mentioned here. Since the day when the government adopted market linked pricing mechanism for petroleum products, on number of occasions, the government hiked the prices of petroleum products, at all occasions its argument runs in the similar lines. This is reinforced by the argument extended by Planning Commission Deputy Chairman, Dr. Montek Singh Ahluwalia, the blue eyed boy of Manmohan Singh. Over the last one year due to such price hikes, government / OMCs scaled up their incomes. Despite that in the last budget, government refused to share these incomes generated in this manner with the public be extending the subsidies. This shows how the government is playing with the notions on subsidy to reassert its class interests and also lso, the attempt to lure the public by saying that all these burdens will in turn comes back to them at a later point of time, would defy the sound logic. While expressing the willingness to shoulder the responsibility to save out the world from economic crisis, the Prime Minister categorically states, that these steps are necessary in order to restore the confidence of investors, (the sensitized term for the class rule represented by global MNCs in collaboration with indigenous companies that have enhanced their financial influence beyond the boarders) domestic and international. In line with this contention, on Saturday while addressing a conference on Economic Growth in Asia, he attempts to enthuse confidence that, “ As Asian governments, we in the have responsibility to ensure that corporate laws match up to international standards.” He even went on to say, “ the regulation of our stock exchanges comes up to the expectations of global investors and that our banking and financial sectors are examples of both efficiency and stability.” He also eulogizes the fact that but because of his daring initiation of reforms, the Indian companies today are competing with their big brothers across the world to garner the markets. Also he cries foul by saying that unless the government opts for the increasing the prices of petroleum products, the under recoveries will reach to the level of 2 lakh crores. Similarly he extends the argument that all the diesel is being consumed by the rich class which roams around black cobra like sprawling national high ways. On the face of it, it looks that the government is sensitive to the class bias of the diesel subsidies. There is an underlying fault line to this argument and also an attempt to shield the siphoning of much more valuable national treasures by the so called Big Boys in the form of Public Private Partnerships. Even for a moment, if we accepts that the oil marketing companies are experiencing under recoveries, there is a public utility aspect to that. Let us accept the fact that 2 lakhs crores of income that should come to the oil marketing companies if they opt for market based pricing mechanism with out any subsidy component, all these 2 lakhs crores is being directly apportioned by crores of people who uses the petroleum products such as diesel, kerosene, petrol and LPG in the form of using the public, private transport as well as using the diesel to fuel the pump sets that brings out water from the bore wells. In that sense whole nation is getting benefit from the non-earnings of oil marketing companies. Means in effect, each Indian got benefit of a minimum 2000 rupees. Against this the whole policy establishment is up its ante and cry foul and they won’t subside till the complete elimination of subsidies. In this context Hon’ble Prime Minister is asking the nation “ Where does money come from? It does not grow on trees.” Now let us consider other avenues of under recoveries. As we know over the last five years since the beginning of the crisis of Global Capitalism, the government extended 5.50 lakh crores concessions “( here the policy makers are careful to replace the term subsidy with concession) to the industrial classes. Another 1.76 lakh crores of under recoveries has been proved by the CAG in case of Telecom scam and another 1.86 lakh crores is lost and can effective termed as under recovery from the Coalgate scam. Adding to this another 29000 crore income is lost which should have been accrued to the government coffers from Ulta Mega Power Projects coal allocation and 24000 from DIAL Airport income sharing mechanism, which adds up to a whopping sum of 9.65 lakh crores of rupees. Except in the case of under recoveries by oil companies, in the remaining all cases the beneficiaries can be head counted and won’t cross more than a 10,000 in numbers in majority cases. Particularly in case of 2G and Coalgate scams the beneficiaries are below 50. Even if we assume that there are hundred beneficiaries per capita benefit handed over to them comes to 8000 crores on an average per beneficiary. Mr. Prime Minister, will you please dare to tell now, “Where would the money for this have come from? Money does not grow on trees.” !!!

Credit Rating Agencies and International Finance Capital

Credit Rating Agencies and International Finance Capital Veeraiah Konduri, New Delhi http://indiacurrentaffairs.org/credit-rating-agencies-and-international-finance-capital-veeraiah-konduri/ The reentry of Mr. P. Chidambaram, in to the North Block building that homes the Ministry of Finance, has to acknowledge a strange welcome from international rating agency, Moody’s Analytics. In its recent assessment on India titling “ India Outlook : Below the Potential “ lowered the GDP forecast for the FY 2012-13 to 5.5 % from its previous assessment of June 2012 where it expected the GDP growth rate for India will be 6.5 - 7 % with a warning “ The impacts of “The impact of lower growth and still-high inflation will deteriorate credit metrics in the near term, but not to the extent that they will become incompatible with India’s current rating”. This will be a steep 1 percent cut in the forecast which will have its consequences on the investment bodies, both domestic and foreign. During the month of June 2012, another credit rating agency Standard & Poor, commented, “(Brazil, Russia, India could be the first among the so-called BRIC India, China) nations to have its investment-grade rating lowered to junk status because of slower growth, ballooning deficits and political roadblocks to economic policymaking.” Immediately, with guns in hand to fire from the shoulders of computed statistics, started asking the governments to remove the policy obstacles that are hindering the nation from obtaining the investment grades. It is interesting to know the probable causes in the view of so called rating agencies for giving negative rankings. With the slightly differences on the stress here and there, the argument of rating agencies runs like this. India’s fiscal deficit is beyond the international standards, subsidies are high, inflation is peaking through the roof, no credible steps to reduce the subsidies, inability to open the sectors for more FDI, like the ongoing FDI in retail controversy, policy paralysis, policy under achievement, lack of reforms in labor laws etc. Similar to the Time magazine cover story, the Moody’s report titled “ India Outlook : Below the Potential” refers to more expectations from India policy establishment. Who wants all these to be met as per the prescriptions ? To elicit answer to this question, first we need to know for whom exactly the rating ranks will be useful. Credit rating agencies are primary tools of international finance capital and became essential part of the financial landscape. They used to provide expert opinion in terms of assessing the credit risk for those who are seeking loans. Over the period of time, they are entrenched in to the system of credit market so much that unless the borrower or recipient has a credit rating tag, the lenders and investors won’t come forward to invest in that particular country. Basing on the rating tags, the investors and lenders used to determine their rates of return. Over a period of time, “these private rating agencies assessments, which are designed for private financial markets” have been inserted in to public domain. According to Finance & Development magazine of IMF ( Rating Games – March 2012), these agencies changed the nature of banking regulation from reliance on static, fixed percentages to use of dynamic scores that can change according to assessment of risk. This also resulted in greater sophistication as well as complexity. Secondly, which has more important policy implications, it led to the entrenchment of private entities in to regulation of financial markets and entities. What they do ? Globalisation has changed the international financial landscape dramatically. Till the advent of globalization, liberalization in 80s, the sources of credit and consumers of credit are primarily centered in sovereign nations. The domestic savings and government bonds used to be the primary sources of domestic capital formation. Internationally interconnected financial, credit, consumer markets are one important feature of the financial globalization. This lead to the accessibility of credit market beyond the boarders became a practicality. Thus the regularly floating, fluctuating international finance capital needs certain ground level information basing on which the IFC designs certain structures to be followed by the recipient countries in order to protect the interests of IFC. Mobilising such an information became all the more important task. These so called credit rating agencies are supposed to supply such information which will be factored-in while designing the investment policies and choosing the investment destinations. For this, the rating agencies should get accessibility to the bank portfolios and this access was facilitated through the Basel II accord. For tThis exercise reached to such a stage that the international watchdogs such as IMF and World Banks started ranking the countries according to the ability to attract the international finance capital. In a sense, as rightly felt by Panayotis Garvas ( Finance & Development, March 2012) “ using of such ratings in the financial regulation amounts both to – privatization of regulatory process – inherently a government responsibility – and to abdication by the government of one of its key duties in order to obtain purported benefits.” These ratings impacts the markets, affects the value of assets and thus capital requirements. The crux lies in here. When a country is being downgraded, that gives dual benefits for international finance capital. These dual benefit are in fact collateral advantages for international finance capital. As the world economy is depressed, the so called credit market in the West collapsed, the international finance capital is looking for alternative avenues to invest its profits stashed away from the world markets. In that process, these ratings will be act as coercive instruments in prize opening up of capital markets in other countries. These opening up of capital markets happens at two stages. First through direct investments in certain profitable sectors and secondly through the investments in stock markets and commodity exchanges. That is why opening up of new sectors, such as civil aviation, retail for foreign direct investment became a hot topic and all the neoliberal intellectuals are bating against those who are opposing entry FDI in retail as enemies of growth. Because of political nuances, the ruling UPA II is unable to give a final goahead for FDI in retail, reason behind branding the government affected by policy paralysis, and PM as underachiever. Secondly, As per the market practice, markets reacts to the rating tags. For example, in June, when the Standard & Poor, downgraded India, the Bombay Stock Exchange reacted negatively and lost the market value of shares meaning that the assets of the companies listed in BSE lost their worth. This gives an opportunity for the international finance capital to buy (in the official parlance, investing through instruments like FIIs, Portfolio investments, FDIs) the assets of Indian companies at a much lower price than the actual. Thus in effect the credit rating agencies are working at the behest of international finance capital and advancing the interests of the same hence not serving the larger good as neoliberal advocates asks us to believe.