PC: A Charmer, or A Loyal Script Reader?

US economy shrank for the first time in the last quarter of 2012 after a halting and anaemic growth since 2009, when the “great recession” officially ended. ^^The U.S. economy stopped dead in its tracks in the last three months of the year, according to the latest government data,…But economists said the surprise 0.1 percent contraction in the fourth quarter’s annual growth rate was likely a brief pause^^. Economists consider this just a hiccup caused by “one time” and “seasonal factors”. The downside had Superstorm Sandy, fiscal cliff political gridlock, biggest defense spending cut in 40 years, and draw down of “stockpiled inventories” to account for. The last two factors alone supposedly shaved off 2.6% of growth, which had bounced to stronger than expected 3.1% in the preceding quarter. What is not said is that this bounce back of 3.1% must undoubtedly had rode the “build-up of inventories” too, which are now unwinding. Consumer spending- which accounts for 70% of GDP– picked up sharply by 1.5%, we are told, in the last quarter. Since last quarter is the holiday season- thanks giving, black Friday, Christmas and New Year- is that really a surprise and can it be taken as “increased” consumer confidence in the economy? Unemployment rate inched up in January 2013 to 7.9% despite the “deceptive measures” US labour department uses and disappointed many economists. Signals of economic health from the world’s biggest ever consuming nation are at best mixed and not encouraging.
Across the Atlantic the story is not too inspiring either. If Germany sneezes, then Euro zone catches full blown cold. ^^According to government figures released Tuesday, the German economy grew by a modest 0.7 per cent in 2012 — well below the three per cent growth seen in 2011 and suggests the economy contracted in the last three months of the year. The German government said that shrinkage could be around 0.5 per cent^^. Unlike USA though, Germany has reached a balanced budget under the official EU debt criteria by turning in a small surplus for 2012 of 0.1 per cent of GDP. Balance budget is no longer seen as a healthy sign by economists like Paul Krugman when the growth is faltering. If USA is to “grow” then Euro zone [and other major world economies] must grow; and if Euro zone [and other major world economies] is to grow, then USA must grow- a case  of “circular reference” as an Excel-sheet would point out. Yet, while “quantitative easing” [read unchecked government spending] is not showing “bang” for the “bucks” in US, the “austerity measures” [belt tightening] are not helping Euro Zone members’ case either. ^^Hopes that Europe’s economy might be on the mend were dented again Wednesday when the International Monetary Fund downgraded its forecast for the Euro zone to a second consecutive year of recession. In an update to its World Economic Outlook, the IMF forecast the eurozone economy will contract by 0.2% this year, after shrinking by 0.4% in 2012. Its previous forecast was for growth of 0.1% in 2013….Many of the 17 eurozone nations are in the middle of austerity programs that are reducing demand, driving unemployment to record highs and prompting households and businesses to defer spending and investment^^. The foregoing comments of Christine Lagarde came at World Economic Forum, the foremost “open” gathering of world’s Capitalists. Growth, or rather the absence of it, has been troubling the Capitalists ever since 2007 when the scam of financialization hit the world economy. Every year there is a reluctant admission of faltering growth for the present and of optimistic projections of turn around in the new year.  That is why “Solid Growth” in Indian Economy [and some others] seems like a matter of life or death for global capital, which is asphyxiated elsewhere by tepid and unsure economic revival.  
Money Life foundation’s article, “Foreign brokers fall for FM’s charm – again” made a curious reading indeed in the above backdrop. ^^Palaniappan Chidambaram [PC], India’s Finance Minister (FM), has managed it again. He went on a two-nation tour of Hong Kong and Singapore, to woo investors and bring much-needed capital into the country. And foreign brokerages are falling head over heels for his charms. This isn’t the first time an FM has gone to great lengths to appease and woo the international investment community. Foreign investors have fallen for this before and have made mistakes in 1994, 1998 and 2007. Will this time be different? At least the FM knows the main concerns of foreigners and has managed to address them^^. The article would have us believe that PC is leading the international investors up the garden path. ^^Citi Research’s report said, “The FM was both clear and confident—of what needs to be done, how and when it will be done, and timelines. This is across a spectrum of issues (fiscal, growth, investments, current account deficit, FII taxation/regulations and general sales tax [GST]), and in meeting near-term targets (5.3% fiscal deficit, GDP growth of 5.7% in FY13). Importantly, there was also a lot of openness and willingness to take in audience feedback and suggestions….Apart from Citi Research, brokerages like Credit Suisse (CS), JP Morgan and Nomura, to name a few, have all sung FM’s praises^^. While it would be heart warming to believe that India’s finance minister is a consummate actor, who may sell ice to Eskimos, this “pipe-dream” flies in the face of hard facts.
Even before PC made it back to finance ministry from the hot seat of home minister, Obama had in July last year made clear what he wants from India’s leaders: ^^In too many sectors, such as retail, India limits or prohibits the foreign investment that is necessary to create jobs in both our countries, and which is necessary for India to continue to grow,….billionaire steel magnate Lakshmi Mittal, CEO of ArcelorMittal (MT) has blamed the government for condemning millions to poverty” over a land rights and environmental policy dispute that’s kept the company from investing in a new steel mill [crocodile tears of global capital are exposed by the valiant struggle of POSCO Pratirodh Sangram Samiti against land alienation]^^. Months later it became known that Walmart, which is the fountain-head of global retail, had lobbied US Congress for “access” to multi-brand retail in India [read FDI: The Great Wall Of Retail and FDI ‘Non-Vote’ on Multi-Brand Retail]. Arcelor Mittal’s demand for overriding “land rights” of existing land-holders and for junking “environmental concerns” were sought to be addressed by PC brigade by creating an overarching body, National Investment Board, [read Land is the mother of all scams] to give “single window” clearance to projects of “national importance”. While NIB proposed by finance ministry could not be pushed through due to inter-ministry opposition, a Cabinet Committee on Investment was cleared to fast track projects with investment threshold of Rs. 10 billion and above. “India is a Big Part of my plans“, says Obama according to Centre for Strategic and International Studies: ^^four concrete proposals are offered to advance our [US, and India] shared priorities, namely the establishment of a detailed “New Framework for U.S.-India Economic Cooperation;” the launching of a U.S.-India Job Creation and Skills Building initiative; the signing of a memorandum of understanding (MOU) on defense co-production; and the pursuit of a six-power regional initiative for Afghanistan^^. The “policy prescriptions”, which emerge from such global “think tanks” financed by global capital, become the blue-print for Indian government to act upon.
Credit rating agencies too have been consistently snapping at the heels of India’s economic administrators to goad them on to “desired” path. What they have been advocating for long and repeatedly too is, Cut Fiscal Deficit, chop off subsidies and social sector programs, make investment climate stable and predictable, discipline direct and indirect taxes administration to make it investor friendly [especially foreign investors – read Vodafone Voodoo], remove restrictions on foreign direct investments [FDI], reduce current account deficit [oil, of course, but gold imports too playing havoc there], and generally bring prices in line with markets. Their pronouncements of India’s Doom had made PC a desperate man to please rating agencies at the time he assumed charge at finance ministry. Credit Rating Agencies performance is woeful to say the least [read Holding Accountable: Big 3 Credit Rating Agencies], but since they have become a law unto themselves, there is no way as yet of reigning them in. There should have been, but there is no way to audit their work. Even Euro zone countries could not ward of their evil eye; in fact, except Iceland – in Europe but not in Euro zone- no one else had the courage to risk sovereign default. Iceland, unlike Ireland or Greece, had sovereign currency, and uncannily, prospect of certain ruin, had it heeded the advise of IMF, to draw strength from. But Indian economic administrators would not be caught with such economic-spine. Almost every policy measure that Indian establishment takes for its economic governance has a “foreign hand” behind it. Its pace and nuance are the only two things that are dictated by the indigenous compulsions of electoral dividends.
An acquaintance, who is well known as an RTI activist and economic crimes investigator, very astutely observed on a forum, where I had forwarded the news of Brooking Institute opening its India office,  that “Brooking” has one “o” too many. Is it any wonder then that “Foreign Broking Houses” were enthralled by our finance minister’s charm? When he was reading out the script they wrote, where was the element of surprise? May be they were pretending to have fallen for his charms. Greater is the charm of our finance minister, if finer is his ability to erode our country’s economic sovereignty.
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Regarding Economy and Growth read these two thought provoking papers.
Paul Krugman is a relentless campaigner for running huge deficits [quantitative easing] to stem the slide into recession. In his regular blog in New York Times, he came up with this flimsy and pleading critique of Gordon’s, what he calls, “stimulating essay”.
 

One Response to “PC: A Charmer, or A Loyal Script Reader?”

  1. Murtaza Motasim Says:

    ^^Falling for the second straight month, India's foreign direct investment (FDI) inflows declined nearly 19 per cent to USD 1.10 billion in December 2012 due to global economic uncertainties. In December 2011, the country had attracted FDI worth USD 1.35 billion. For the April-December period of 2012-13, the inflows have declined by about 42 per cent to USD 16.94 billion, according to the data of the Department of Industrial Policy and Promotion (DIPP). According to experts, decline in inflows is largely due to uncertainties in the global economy^^.If inflows dip, blame the global economy. But when they pick up, crow over P Chidambaram's magical touch. That seems to be way.

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