By Sanjay Jha
The Euro crisis which began in the famous Olympian city of Athens can be called a Greek tragedy . It has had a domino effect, with Ireland, Cyprus and Portugal giving it empathetic company. The other more illustrious states such as Italy, France and Belgium are beginning to feel the inflammatory heat generated by falling bond values. The European banks are in panic mode as they believe they hold near-junk bonds instead of what was thought to be zero-risk sovereign assets.
Despite the Osama bin Laden triumph , Barack Obama’s return to the White House is precariously dependant on that classic line , It’s the economy, stupid. It is indeed bizarre that in a country with a poverty line twice the size of the American population, the Indian economy only comes into focus when there is a Rs 1 hike in petrol price or when Uma Bharti decides to incinerate Wal-Mart stores.
For India the external situation appropriately reflected in balance of payments problems ought to be a high priority simply because it is an uncontrollable variable. The fact is that reckless financing of suspect mortgages in the US did plunge the world into The Great Recession. As did humongous public debts in Europe. In an interconnected global economy, you take nothing for granted.
The European Central Bank ( ECB) made available an astounding USD 628 billion in three-year loans to 500 banks across Europe; clearly the EU banks for long stationary on a treadmill have failed the stress-test. Its financial repercussions will doubtlessly impact India, as is already evident in negative FX outflows, and the rupee’s dramatic depreciation.
India needs to get more ambitious! The problems of a chaotic democracy is that both unbridled optimism or downbeat despondency get oversold. We appear satiated with cosmetic endeavors, synthetic success, frequently gloating over our demographic dividend and some fleeting statistical data to justify euphoria . We often miss the woods for the trees; the perfect instance being the abrupt questioning of the funding status of UID scheme, overlooking the immeasurable impact of electronic transfers to needy people without the avaricious middle-man. Clearly, warped priorities enervate the system. In the meantime, the ChIndia story gets one-dimensional . China seems set to eclipse American GDP in purchasing-power parity terms by 2018, and the Chinese renminbi threatens the dollar as reserve currency of the world by 2020. That could have tectonic ramifications. In short, while we squabble bitterly over parochial politics, China is rewriting the new world economic order.
We spent the whole of Y2011 obsessed about Lok Pal. Corruption does corrode growth, but India needs concomitant policy changes in various fields that cannot be stored in animated suspension. Cherishing mindless commotion is becoming our national sport . It is symptomatic of a society under some serious delusions, heightened arrogance or plain stupidity. We need speedy break-neck structural reforms, transparent governance, large government outlays in education and health, public-private partnerships and visionary thinking.
We need to attract FDI in retail; after all the real India story is in its astronomical numbers. Xenophobia cannot accompany globalization . Land acquisition laws are crucial to infrastructure investments, both domestic and FDI. With food inflation down to 0.42% compared to 16% of December last year , a downward revision in interest rates is now foreseeable, though not immediately For us, the big buzzword of 2012 should be on execution.
In global financial markets, contrary to popular belief, often perception overrides macro-economic fundamentals. After all which probability theory predicted the housing market crash or the Euro-zone crisis? India constantly fumbles, as we have specialized in exporting our bad hair days.
The Mayan’s believe December 21st 2012 will be the end of the world, but if we are imaginative and bold, that might be Christmas celebration time. The fact that now George Clooney can buy an SBI share in our local bourses can be a harbinger of changing times. About time.
Sanjay Jha is a former banker, internet entrepreneur and currently ED, Dale Carnegie India. Twitter@JhaSanjay