Christine Lagarde’s Sweet spot, Oops, Bright Spot!

She has come. The managing director of International Monetary Fund [IMF] is here in India. IMF is that “venerable” institution created at Bretton Woods just as WW-II was ending to “foster Global Growth” and to “Ensure Economic Stability“. The chief of IMF is not given to making courtesy calls or paying social visits. Moreover, she has come here when there are exceedingly pressing  matters needing her most urgent attention in her own backyard, Europe. She has “generously” extended some $ 13 Billion to “bailout” US installed Ukrainian junta in Kiev, so that it continues to act as a US proxy on Russia’s borders instead of simply folding up. The threat of collapse of EU may become real if Greece is forced out of the Euro; and then the contagion spreading to Spain, Italy or Portugal, not necessarily in that order. At first glance, if the “irresponsible” economic laggards from the EU-periphery get kicked out, then won’t it be good-riddance? The core of EU -Germany/ France/ Netherlands/ Austria/ etc would then breathe easy. Poor Christine Lagarde cannot take comfort from such illusions. The Austrian contagion [Hypo Alpe Adria’s “bad bank” Heta] of a bank turning belly-up has claimed its first victim in Germany [Duesseldorfer Hypothekenbank AG (DuesselHyp)], the heart of Euro. Though, we are told “nothing to worry” only one German bank is affected; were we not told the same thing when Heta imploded distressing the finances of southern Austrian province of Carinthia?  No, for Lagarde to leave urgent matters on back burner and pay a visit to India mean that she has even more urgent agenda to pursue here; and the “timing of visit” is crucial. But, before we solve the simple riddle of what it could be, let us see what she has been saying since landing here.

More than six years after the global financial crisis, the recovery remains too slow, too brittle, and too lopsided…. And while the global economy is expected to grow by 3.5 percent this year, and 3.7 percent next year, this is still below what could have been expected after such a crisis… And while the global economy is expected to grow by 3.5 percent this year, and 3.7 percent next year, this is still below what could have been expected after such a crisis… In this cloudy global horizon, India is a bright spot “.

India’s gross domestic product will exceed that of Japan and Germany combined in the next four years, when adjusting for differences in purchase prices between economies“.

Oh, Thanks for telling us this wonderful fairytale, Ms. Lagarde. Could we now go and party over these good tidings? Wait, Wait, Wait! To get the gold pot at the end of the rainbow, you Indians would have to fulfil some caveats. What are those, Ms. Lagarde?

government needed to do more to allow an open and competitive business environment to flourish, and up to USD 1 trillion in infrastructure investment was required over the medium-term“.

While Modi has pledged to streamline bureaucracy, too many projects were still being stalled by red tape. These issues are on the radar of policymakers, which is promising, they must be on the action list“.

Much needs to be done in easing land acquisition, expediting clearances, and establishing a stable regulatory regime so that the private sector can invest“.

These are standard “prescriptive” demands that IMF puts, expects them first to be implemented [IMF’s Casuality List], and then opens up its “conditional purse strings” to countries facing defaults in meeting international obligations; as it happened to India in 1991 when it had to fly out 40 MT of gold to tide over payment crisis. The reforms that M M Singh is credited with were in broad scripted by IMF. Today, the situation is hardly the same. India is not in crisis, at least not yet; but the world economy is in crisis. Not just the growth is sputtering, but even the stability of the world system is at stake. Federal Reserves Quantitative Easing [QE] has put DJIA and NASDAQ on steroids, but the real US economy continues to stall; the commodity prices are in a free fall confirming demand contraction. Abenomics administered for two years the same failed medicine in USA, with worse outcomes for Japanese economy; which has now failed to revive for over three decades. EU eked out an austerity path by “attempting” to live within it’s means. But an incomplete union with a common currency, single monetary policy, but individual national fiscal policies with widely differing productivity/savings rates/capital output ratios was a doomed experiment. When austerity didn’t help, European Central Bank [ECB ]decided to taste the very same medicine that USA/Japan had tried and has begun this month massive Euro 60 billion asset purchase program. This monetary expansion began just as Greece seems to become the first casualty of EU [Greek pensions funds are now paying IMF to bailout Ukraine Junta, which is not part of EU]. China was cheered when it seemed to assume the charge of global growth through fuelling domestic demand. But, even the dragon is looking more and more jaded with new-normal 7% growth -a far cry from the long run of double digit growth, and having to stare at its own asset bubbles created out of massive debt. Currency wars have broken out in the global economy where even giants are driving their currencies down through near Zero/Zero [USA/Japan] or Negative Interests rates [EU/Denmark/Switzerland]; and heightened liquidity. Some 24 Central Banks in the world today are easing their monetary policies including RBI, which had two out of turn rate cuts. [See the values of USD, YEN, EURO and RENMINBI in Indian Rupees during past 6 months plotted together to see depreciation in latter 3 and why it is like to hit Indian exports hard due to strong Rupee].

IMF has a “good reason” to be concerned. The very raison d’etre of its existence -to foster Global Growth” and to “Ensure Economic Stability” is under unprecedented treat. The roving of ambassador of Global Capital is out here on a life mission. The mission is to unlock India’s natural resources that are locked above and below its lands and waters. The lands that have to be “liberated from the clutches” of millions of farmers, landless farm-labourers, cattle herders, shepherds, and the deeply marginalised communities of tribes. The lands that need to be cleared of Forests of different grades, grazing lands, or even mountains [such as Niyamgiri]. It is then and only then that the “full potential” of India’s growth story can be unlocked and made available to “animal spirits” of global capital to rampage on. It is then and only then that India would assume it’s true leadership position of the world economy. That is the message Lagarde is carrying to India’s Prime Minister, President, Finance Minister, RBI Governor, and others. The timing of the message is crucial because “crucial economic bills”, including the jewel in the IMF crown at the moment -the “Improved” Land Acquisition Bill, are hostage to Rajya Sabha, where BJP lacks the numbers to carry the voting-day.

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PS: India’s suddenly healthy looking GDP Growth numbers have a fine print. CSO revised the base year and also started reckoning GDP at MARKET PRICES rather than at FACTOR COST. This method-change has made GDP growth rate of even 2013-14 a respectable above 7% in Retrospect. Did anyone notice the difference 2% jump in growth rate made in their lives? Of course not. Changing size of a foot ruler doesn’t change the size of ground measured with it.
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