The World’s 20 largest economies’ leaders met together in the London Summit 2009 to fix the global economic crisis and to ensure the growth and stability. At the closing ceremony of the G-20 Summit, the leaders of 19 nations have agreed upon certain outcome of this summit. Most of the nations raises their voice against the Protectionism and agreed on the following commitments:
- Restore Growth and Jobs.
- Strengthening Financial Supervision and Regulation.
- Strengthening Global Financial Institutions.
- Resisting Protectionism and Promoting Global Trade and Investments.
- Ensuring Fair and Sustainable Recovery of the Global Economy.
In a G-20 Summit, the nations have reached the agreement to announce $1.1 Trillion programme of support to Credit, growth and jobs in the global economy and apart from this, they have also announced to triple the resources available to the International Monetary Fund (IMF) to support for Trade Finance, and the use of additional resources from the agreed IMF gold sales for concessional finance for the poor countries. In terms of economic stability, however all countries need to improve their domestic lending process and capital flows. Credit market is still not very efficient to support the industrialized economies. Developing nations have faced the huge amount of capital outflows in the recent past and they pledged the developed nation to allocate $500 billion to the IMF for the smooth lending. On 9th Apr 2009, India has decided to contribute upto $11 billion to the IMF for that purpose.
As far as the Financial system is concerned, the leaders has agreed on sturdy Financial supervision and regulation to prevent a crisis like this from recurring in the future. The financial institutions have enjoyed the strong performance prior to the financial crisis, but now face unprecedented turmoil. The changes emerging from this crisis will be permanent. Thus, there is a need for a strong domestic regulatory for the institutions. Today, most of the countries enjoyed the speedy economic growth due to international trade and the leaders at G-20 have consented upon resisting protectionism and to promote the international trade.
The next G-20 Summit is held in Autumn (end of this year) and they have decided to closesly monitor the developments and decision they have agreed upon.
Indian Economic Growth Estimated at 7.1 per cent for FY2009. Will Indian economy continue to achieve stable growth rate?
Important Events to Watch
- 15th Lok Sabha Elections
- Falling Inflation (Even Deflation)
- Current Account
- 4th Quarter Earnings in India and 1st Quarter in US
- India’s Trade (Export & Import)
- Falling Commodity Prices
- Monetary Policy
- Post-Elections General Budget
Indian
economy is one of the fastest
growing economies in the world
followed by China. Since, the
Global Finance Crisis has
embarked; it completely
dominates the Indian economic
growth. The recent IIP data
showed the further weakness. The
General Index stands at 279.1,
which is -1.97% lower as
compared to the level in the
Nov, 2007. In FY2007-08, Indian
grew at a growth rate of 9.0%.
For FY2008-09, CSO has estimated
7.1% growth rate of the India’s
GDP. India’s exports have fallen
due to lack of demand in the
international market. India’s
central bank, Reserve Bank of
India has reduced the benchmark
repo rate by 250 bps since the
Aug, 2007 to 5 per cent to buoy
up the sustainable
economic growth. We’re expecting RBI will cut Repo rate further by up to 100 bps from here. Going forward, the falling inflation will encourage RBI to smooth down the monetary policy to prop up the economy. India’s Inflation falls to record low due to comparison with Higher Base rate, which will expedite the probability for RBI to cut interest rates. Actually, falling inflation is good for economy especially in this time period, where most of the economies are facing huge pressure due to financial mess. However, the question arises at this point is, Will India see technical Deflation in the coming weeks?
Deflation. Is it good for the Economy or Bad?
From VMW’s point of view, in general, Deflation is just opposite to Inflation means general decline in prices and it also shows the increase in Buying Power. But overall, in these economic times the Deflation is not good. Due to lower demand for Products and Service, this will also lead to the higher unemployment rate which means higher Bank’s NPA (Non-Performing Asset) or default on loans by company or individual; lower profits, lower demand for credit and which can also lead to Depression in the economy. If it happens, then the RBI would take hawkish measures to counter Deflation. Perhaps the RBI may raise money supply in order to provide the ample liquidity and the sufficient room for the economic growth, causing inflation. Inflation between 2% and 3% is necessary for the economy.
However, the India’s Inflation rate is generally calculated by Whole Price Index (WPI). If we look at the Consumer Price index (CPI), which actually matters a lot to people like me and you. CPI Industrial Worker is currently above 9%. WPI inflation now days are not widely use in the global economy. Specially developed economies uses CPI to get the annual inflation rate. Thus, the WPI headline Deflation is not a matter of concern in the Indian Economy.
Economy Ahead & Crucial Phenomenon
India Votes 2009
Lok
Sabha elections are round the
corner and the political parties
are campaigning to make a way to
the Prime Minister’s Office (PMO)
in 7 Race Course Road, New
Delhi. General Elections have
lot of influence on the Economy.
Investor anticipates new
reforms, policies, and overhaul
of the existing policies and
especially since the year 1991,
the beginning of India’s
Globalization era, Election has
a different factor to the
economy. This year, the Polls
would be extremely vying, and
since the Mumbai Attacks in
November last year, Security and
Economy are the major challenges
for the political parties ahead
of the elections. The most
important is that, the
Government should be handed over
to the responsible hands; the
election of a weak government
will lead to the negative
environment especially in the
Equity markets and the economy.
Congress and its Allies are
emerging stronger this year too
and likely to form a new Gov’t
if all things go in a right way
means, if the seat sharing
formula of Congress with its
allies done successfully,
however the 714 million voters
will decide, who exactly
deserves to rule the world’s
most populous Democracy.
On the macro economic perspective, inflation has slumped to record low, however it is not showing the realistic value due to higher base effect and the WPI method. The lower inflation or possibly deflation unlikely to have a direct impact on consumers, but pursuant to falling inflation, the economy at this time is completely contingent on the central bank. In developing nations, there has been substantial slowdown in flow of international goods, funds and technology and reduction in RBI’s benchmark interest rates could probably give some benefits to the economy. While the depreciation of Indian Rupee (INR) against the US Dollar (USD) strained the economy further. It would enlarge the India’s foreign debt and corporate debt. Indian Government is already facing the higher deficit to the GDP due to lower tax revenue and higher expenditures due to stimulus package and tax cut in this fiscal.
On a different aspect, the West’s Economy and Japan Economy (including US, Euro Zone) is completely deteriorated. Cost of credit remains high, liquidity remains limited, asset price remains low and the Zone’s Central Banks has left no options as they have done their level best to stabilize the economy. Financial markets have wild volatility due to numerous ambiguities in the environment. Even the current economic turmoil has forced many companies to go for a massive restructuring. Airline companies have already decided to go for merger to share cost and revenue benefits due to higher oil prices (in Jul 2008) and lower passenger volumes due to slowdown. GM in the Auto industry for instance has demanded the Federal Government assistance due to huge amount of losses and if the situation getting worse, than GM would left no option but to file bankruptcy. Earlier GM was considering going for merger with its distressed rival Chrysler. Now, Obama Administration has forced the Richard Wagoner to quit as a CEO of GM, and reports tell, that the GM likely to file for Bankruptcy by Jun, 2009 in order to restructure itself.
Since the US Presidential Elections in Nov last year, governments around the world are now more active before than that. In India too, government had announced the three stimulus packages to support the small and medium scale enterprises along with the domestic demand. According to the international survey, the corporate leaders are more optimistic about the Government’s move to support the economy. In response to extraordinary circumstances, the government should be more active now. Even the US Govt was considering nationalizing its ailing banks. Citigroup is the most problematic to handle for the US govt, which supported the bank by a way of infusing the additional billions of dollars in capital along with the $300 billion of asset guarantee. However the recent Memo of Citi has declared that the bank has made an operating profit of $8 billion after 5 quarters of losses. Probably the profit may turn into the net loss when the bank restructures its loan portfolio. There is no doubt that the bank’s asset quality is completely wretched. However, the troublous US economy is not started getting some good news especially from the root cause of the whole problem “Housing sector”. In the month of Feb 2009, home sales rose by 5.1% unexpectedly in the last six years as the buyers took advantage of deep discounts and foreclosure properties. Overall, the economic indicators are suggesting that the pick up of the global economy is now round the corner and the whole troubling situation is now going to bottom-out.