UN warns of severe crisis

Poor’s money at risk

By Shivaji Sarkar

Even as Finance Minister Jaitley looks for new ways and methods to rejuvenate the Indian economy, the world economic outlook appears to be bleak. The new UN report underscores the global economy appears stuck.
Undeniably, the financial system is facing a grave crisis and the people have to be cautious about is safety and fairness. Spelling this out, the UN Conference on Trade and Development (UNCTAD) report on Trade and Development blames a combination of factors for the sinking world economy.
And calls for ending austerity, clamping down on corporate rent seeking and harnessing finance to support job creation and advocates infrastructure investment, specially as this has frozen across the world.
Asserted UN Secretary-General Mukhisa Kituye, “It is a combination of too much debt and too little demand at the global level’”, adding “this has hampered sustained expansion of the world economy”.
Unfortunately, every bit of what he says is true about the Indian conditions notwithstanding some reforms like GST.
Worse, according to UNCTAD the world economy is not lifting off. While growth in 2015 was almost flat at around 2.6 per cent it was slightly better than 2016 when it slumped to 2.2 per cent. Today, it notes that India and China have come down to the same level at 6.7 per cent.
However, India’s internal figures suggest it is even less than 5.7 per cent. Naturally, this is a cause for concern for Jaitley and solutions are not easy as the Government is facing a cash crunch on the one hand and people are getting squeezed under a heavy tax burden. The GST has yet to settle but income-tax is eating into the purchasing capacity of the salaried class, supposedly the mainstay of the Indian market today.
In such a scenario, Latin America seems to show the “biggest turnaround at 1.2 per cent growth The Euro zone growth touched 1.8 per cent but lags behind US, which is at 2.1 per cent.
Importantly, the main obstacle to recovery is fiscal austerity or what in Indian parlance is “cutting down expenditure”. Interestingly, the UNCTAD report finds that 13 of the advanced economies experienced “austerity” between 2011-2015.
Besides, for India trade will remain a problem as exports have not grown and imports have not slumped. Consequently, the trade balance is massively distorted. Gloomily, hopes of its correction are not seen by UNCTAD. Also, global demand remains sluggish as world over there is a lack of jobs as a result people do not have money to meet their needs.
Pertinently, UNCTAD had laid the highest hope on growth of emerging economies, particularly India and China, but now it states “they are facing significant downside risks. Debt levels continue to rise without real signs of robust growth and there concern about political instability, falling commodity prices, higher interest rates in the US and a stronger dollar”. All these are virtual key risks for the Indian economy.
Another concern that India recently faced is being seen to be a global phenomenon. Think. Net capital flow is shrinking — reminiscent of the 2007-08 global meltdown scenario. Also, net private capital flow that had reached about $ 200 billion in 2011 has shrunk to negative levels since late 2015 and has yet to recover.
The deregulation of financial markets is being seen as the biggest problem. It increases inequality and instability. The rise of the top one per cent super elites is a major problem, says the report’s lead author Richard Kozul Wright. This trend leads to severe inequality and spells a precarious future as investments would be insufficient, no job growth and welfare provisions would weaken. All these are seen to be manifesting in India’s economy.
The report lambasts the bail-outs that were announced after the 2007-08 meltdown. In the Indian context, though at that point of time it was not needed, it has led to massive bleeding of bank reserves, estimated at Rs 12 lakh crores (Rs 12 trillion).
Undoubtedly, this was the bonanza to large corporate world-wide. It bled Governments and public savings and led to rise in irrational bank charges across the world. Alas, India which that had maintained a distance from this global phenomenon unwisely succumbed to the corporate lobbies taking its burgeoning economy downhill. The correction now is a difficult economic and political task.
Further, increased automation in India’s IT sector has resulted in people being thrown out of jobs. This is another concern for UNCTAD whereby the system is “becoming unduly biased in favour of a handful of large corporations”. This precarious situation has seen a few corporates have made massive gains and now some are looking for bankruptcy cover.
This has given a severe warning. “The failure to correct the excesses of hyper-globalization (corporatisation) is not only jeopardising social cohesion but diminishing trust in both markets and politicians and increase inequaites.
While calling for a change in the global system, even as UNCTAD finds the way difficult, it avers the world has to come out of the grip of finance — banks and related organisations. The total banking sector assets since the 1990s have more than doubled in most countries, including India, with peaks at 300 per cent of the GDP in some OECD economies.
India has of late also gone into the clutches of banks and financial institutions leading to high costs, extortions which are adding to peoples’ miseries as these organisations favoured large corporate while fleecing the average common savers. Thus, the aam aadmi’s money is at risk which finally leads to the doom of the market and economy.
Hence, UNCTAD calls for an end to financialisation as it has led to indebtedness across the non-financial sector, increasing to 188 per cent of the global GDP crisis. Steps like demonetisation are also financialisation and leads to severe “income disparity”.
Among some of the measures for correction, it calls for a global dialogue like the Marshall Plan of 1947 charted out by IMF, World Bank and General Agreement on Trade Tariff (GATT).
Last but not the least, the UN body calls for labour’s strong voice for higher wages and bringing down tax rates as this mostly deprives about half of the earnings of the wage earners.
Clearly, Governments have to come together to take people out of the clutches of big houses and financial sharks. If this happens the global economy would see a turnover else it would continue to shrink as “income equality” (poverty) may continue to rise, the report warns. Therefore world Governments must make the report a bedrock of the policy framework. — INFA