Sunday, 14 December 2008

The Threat to Globalisation

 The Threat to Globalisation

By Gopal K Agarwal,

Few years back, globalisation was the buzzword around the world. It assumed everywhere that with globalisation, economic development will come automatically. All countries were looking toward means of integrating their domestic economy to the world economy, basically US and European Economies.

How could India be left behind, we also that the world economies have to be integrated. We have to globalize. With the fall of communism, the path became more imретаtive. There was no alternative.

Although in hushed tone, we did talk of alternative ways, but it was not defined. The path was not clear; it was only conceptually delved upon. We were all confused. We formed the opinion that the lofty ideals of Swaraj and Swadeshi had more of a social relevance than economic foundations 

We are at a crossroads now. With failure of capitalism and current global financial crisis, we need to go in details the pitfalls of American Economic Model and how to engage our economy from the current global crisis.

The fundamental difference between US and other economies that the western economy works on consumerism, they are based on high consumption rate and successively increasing it to the tune of even financing it through debts. Currently US have a net debt of five trillion dollars. 

What US is doing is buying Produce from other countries by paying dollars, and this payment of dollars is being met through indiscriminate printing of currency. They have built a system of economic structure through mega institutions like World Bank, IMF, etc. Through this structure, the reserves of other countries are being kept in dollars and invested in US Treasury Bills. The currency, which was issued by US to buy produce from other countries, comes back to US as investments in its treasury bills.

Further, US successively resorting to deficit financing. It has huge budgetary deficit. Annual US budgetary deficit me from 162 billion dollars in 2007 to 455 billion dollars in 2008. On one hand, it's economists' adrese other countries to abstain from deficit financing, but it itself is nothing to deficit financing, we need to analyze the purpose behind. Then successively devalues its currency. Thi devaluation helps US to being down value of investments of other countries.

World is supplying produce to US in dollars and then investing its surplus in dollars. The money received by US being loaned to its population with nut proper credibility assessment, which is now being called Subprime lending, in lending without proper security assessment. Which was bound to fail and has failed. This indiscriminate lending itself was helping US to leverage its capital and create asset bubble, which has now buried, and the world has lost trillion and trillions of dollars in capital.

Further US has loose regulasury pro visions with regard to bankruptcy laws and leveraging h has accounting pro cedures and financial instrumens like Over the Counter (OTC) products, which helps it to camondlage the identity of lender and borrower, and helps in asod ing provisions and doclosures of mark to market losses, till the time it chooses to do so.

On the other hand, India is a savings economy. We save more than 35% of our GDP. We have huge domestic market and a very large population. Sixty-five percent of our population is young and working Non-payment of debt is a stigma our country and we have stringent anti-bankruptcy laws.

Fall of America is very certain. Dollar is very weak, but it is holding back only due to its being owned and bought by other countries.

We need to understand Americisuruation and its fall and to take correc ove measures, however difficult and hard they may be Because the konger we wait the situation will be further worsened.

Need of the hout in to desengage our economy from global economy Preserve out domestic market at all cost, take up massive infrastructure development projects, reduce merest rates, reducc indirect taxes, which form a very high consponent.

(The writer is National Convener, BJP Economic cell.)