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Page added on May 12, 2018
Oil, $ Surge= Wage, Farm Crisis
The world economy is in turmoil as crude touches a high (since 2014) in the wake of US rejection of the Iran nuclear deal. The Rupee is on a roll to touch one of the lowest marks against a surging dollar, a phenomenon that occurs for the eleventh time since 1983.
Undeniably, inflation is set to rise in India. The good news? As interest rate rises it would cause cheer to depositors and the banking sector. This will boost savings which has touched a low of 29% growth in 2016 from a peak of 38.3% in 2007, just before the Lehman Brothers crisis ruined the banking sector. Malaysia and Pakistan have already started gradual increases in interest rates.
Remember, the rupee had touched Rs 58.96 against the dollar in May 2014 soon after the NDA Government took over and now it has gone to a low of Rs 67.43 and is projected to fall further. This poses a politico-economic problem as twin rises – oil and dollar – disturbs businesses and Government and leads to an inflationary situation, trouble for international commerce, trade balance, budgetary projections and possible inequalities.
Pertinently, all this is happening at a time when the UN’s Economic and Social Survey of Asia and Pacific 2018 (ESCAP), launched in Delhi and International Monetary Fund’s (IMF) latest economic outlook, project low regional and world growth necessitating economic reorientation.
Undoubtedly, world bodies are worried at the US attitude and economic roil. India is seeing a currency crisis that had last hit it in September 2013, when the rupee had touched almost Rs 68 to a dollar.
Certainly, this not only makes crude more expensive for an Indian but also hits home budgets and might lead to a farm crisis as input costs, particularly irrigation, fertiliser and transport are bound to rise. Consequently, there might be problems for growth, job creation and development funding. Wage rise and many readjustments are a must.
Significantly, the IMF has just projected India growth at 7.4% up from 6.7% in 2018 though advanced economies including the US would have almost 0.2% rise in 2018 at 2.9% and in 2019 at 2.7%. The Euro zone will grow 2.4% this year before falling to 2% in 2019.
The ESCAP projection is 0.4% growth for Asia-Pacific, having 53 States with 60% of the world population, at 5.8% in 2017 against 5.4% in 2016. India and China lead the growth and the Russian Federation which having come out of recession on oil price recovery might add to the cushion.
However, this year growth in Asia-Pacific is set to fall to 5.5% as in half the countries consumption of the bottom 40% grows at a slower pace. As real wages are not rising by rising productivity, consumption would be led with debt and cause financial vulnerabilities.
Social inequalities are also set to rise with higher inflation as economies would be operating below their potential, hit by low wage and job growth. Though e-commerce might meet demand at lower costs, automation may further lower wages. The working classes in the region are in for big trouble. Whereby, it might be an uphill task to contain social discontent.
Further, trade barriers and harsh US measures are likely to further disrupt cross-border production networks. This may affect not only trade but also long-term investments. Even short-term investments like withdrawals by foreign portfolio investors from the Indian market might cause foreign exchange problems to be further fueled by rising import bills for crude and other goods. Obversely, exports rises would be moderate and are unlikely to offset the foreign exchange.
Significantly, a repeat of the 1997-98 Asian financial crisis is forecast. It might have an adverse impact on India’s Look East Policy as countries like Malaysia, Thailand, South Korea and China face financial vulnerability in the wake of rising private debt resulting in asset price corrections, says ESCAP. It might also impact projected Indian investments in building roads in Myanmar and South-East Asia.
According to ESCAP India was hedged as commercial lending rates were not lowered because of banking sector problems. Hence, rising deposit rates would not be much of a problem for Indian businesses and would help individual savers.
While ESCAP has stressed on further tax widening and increases, it has not stated how rising taxes add to citizen’s woes as it is inflationary and increases Government expenditures. This leads to a concern of povertisation of the transitional, middle, class, says Jaimini Bhagwati, RBI professor, ICRIER and former Finance Ministry Joint Secretary. Adds ESCAP South and South-West Asia Head Rupa Chanda, the tax increase measurers also leads to problem of attitudes (tax-terror) of tax officers.
Notably, if the Government wants deposits, which had fallen because of lowering of interest rates and taxing individual banks deposits to rise, improve health of the banking sector it has to amend its policies and let the deposits not be subjected to TDS.
This will boost banks, economy and reduce the Government’s burden on avoidable costs, processes, and litigation. Since the introduction of TDS on bank deposits, reviews and litigation have increased. If this is done away with individual and bank liquidity is set to rise and Government finances are bound to improve with higher consumption, tax realization and better ease of doing business.
Similarly, many unnecessary recently introduced banking procedures also have to be simplified. For a few rogues, all bank clients should not be punished. Tax procedures and banking should create a friendly approach to the Government in the run up to the 2019 polls.
The ESCAP also suggests ‘macro-prudential’ measures to do away with financial (tax) excess. These, it says, reduce systemic risks and safeguard stability of financial (banking and revenue) system and markets. It sees problem in India’s Rs 9.5 trillion NPAs caused by corporate leverage. Its oblique suggestion is not to hit the ‘micro’ individuals — citizens of institutions.
Another aspect that has to be taken care of is the surging deficits of various State Governments. The Centre’s deficit, it finds, is controlled and overall debt is one of the lowest at 60% compared to Japan’s of above 20%.
In sum, it finds strengths in the Indian economy but calls for fine-tuning to make the trajectory smoother and faster. The international situation — oil prices and dollar — would remain a problem but with some ease of methods and trust in citizens, India can remain the engine of world growth.
16 Comments on "Oil, $ Surge= Wage, Farm Crisis"
Outcast_Searcher on Sat, 12th May 2018 12:39 pm
1). The global economy is not in “turmoil” due to $70 oil. That’s nonsense. $70 oil is a moderate price, looking back 15 years or so.
2). India is a big country, but it is most certainly NOT the global economy. If oil prices continue to advance, their leaders should no doubt adapt, and pursue more intelligent policies to deal with that reality. However, that is an India issue.
Articles like this that just make false claims and exaggerate things might make good doomer porn, but once they make stuff up right from the start, they can’t be taken seriously.
Cloggie on Sat, 12th May 2018 12:42 pm
What OS says.
http://www.worldbank.org/en/news/press-release/2018/01/09/global-economy-to-edge-up-to-3-1-percent-in-2018-but-future-potential-growth-a-concern
Global growth is 3.1%
That is good for wealth, for the environment not so much.
Cloggie on Sat, 12th May 2018 12:57 pm
Where would we be without Eindhoven, I’m asking you?
Students of my Alma Mater have developed a 350 kg car that is 100% recyclable. And it is sexy on top of that!
http://www.spiegel.de/auto/aktuell/kreislauf-auto-noah-komplett-zerlegbar-und-wiederverwertbar-a-1206289.html
The video:
https://www.youtube.com/watch?v=Ke8m6cDtviA
Official site (English):
https://tuecomotive.nl/
Should be on the road by the end of 2018.
Made from flax fiber and sugar.
Electromotor 15 kW, 6 x 10 kg batteries.
Speed 100 kmh
Range 240 km
onlooker on Sat, 12th May 2018 3:36 pm
Leave it to Clog and Outcast to put a good spin on things. The global economy is running on scams now. The Renewable/EV one, the Shale/fracking one, the FB Social media one, the Carbon sequestration one,the Debt one and the best one being they’re is still a bright future to be had
Harquebus on Sat, 12th May 2018 4:16 pm
One has to remember that, when calculating energy costs, fiat currencies are intrinsically worthless so, financial accounting of the energy industry is a worthless measure. EROEI analyses give more accurate assessments if, the analyses are done correctly. Almost all are not.
Swapping worthless fiat currency for a high density energy source and other valuable products is a really good deal.
The Petrodollar is dying. Say your goodbyes to the U.S. now while you have the chance.
Those worthless U.S. dollars in offshore accounts are soon going to start flooding back to whence they came and the U.S. will then suffer inflation the likes it has never seen before.
This is why the banks want a war. All wars are bankers wars.
MASTERMIND on Sat, 12th May 2018 4:25 pm
Wage squeeze worst in modern history says TUC
The UK’s real wage squeeze will be the worst in modern history and the slowest for 200 years, according to union data.
http://www.bbc.com/news/business-44083386
MASTERMIND on Sat, 12th May 2018 4:26 pm
The World and OECD economies (GDP) have been contracting for forty years
https://data.worldbank.org/indicator/NY.GDP.MKTP.KD.ZG?locati
Global economic growth has peaked, says World Bank
https://www.ft.com/content/4b9e6190-f55e-11e7-88f7-5465a6ce1a00
Global economy set for decade of gloom as World Bank predicts recovery will fizzle out
http://www.telegraph.co.uk/business/2018/01/09/global-economy-set-decade-gloom-world-bank-predicts-recovery/
twocats on Sat, 12th May 2018 5:33 pm
wow – this article is involved / dense and shows how dumbed-down western press has gotten when you compare this article to most of what we endure for news on oil and the economy.
doesn’t help that almost everyone who has commented on it so far has gotten it wrong. OS bit onto the word turmoil and just dismissed the rest of it, ignoring the situation for literally billions of people as a minor concern showing his complete lack of empathy. author mentions the world turmoil because of the iran deal rejection – which is tumultuous –
https://www.huffingtonpost.com/entry/der-spiegel-trump-flipping-off-europe_us_5af65ba3e4b00d7e4c1ac5f5
to not see that shows you are almost completely without intelligence. your first clue should have been CL agreeing with you.
i mean for f’s sake – you and clogg are trolls, you suck the life out of this forum, go away – no one wants you here (except maybe each other). we have enough in fighting amongst the doomers.
the article by mastermind on wage squeeze in UK is exactly in line with this article in terms of those at the bottom – which is like what – all but a few hundred thousand people.
makati1 on Sat, 12th May 2018 7:26 pm
“India can remain the engine of world growth.”
Nice piece of Indian propaganda. Well written, as you said twocats.
MASTERMIND on Sat, 12th May 2018 7:31 pm
Indian people worship that monkey god with 12 arms…They are the 711 people, not the 911 people…
Cloggie on Sun, 13th May 2018 3:02 am
“you and clogg are trolls, you suck the life out of this forum, go away – no one wants you here”
Only you, Davy, millimind, BobInget and one or two more want that.
makati1 on Sun, 13th May 2018 3:10 am
Cloggie, that gang of ignorant, immature, egoistical, delusional trolls cannot understand anything outside their small neighborhood. Nor do they have a single original thought, ever. All they can do is spew bullshit and 3rd grade insults. Or parrot Us MSM propaganda. They know the Us is failing and will be a 3rd world Bangladesh-like country before they die. Long before, in some instances.
makati1 on Sun, 13th May 2018 3:23 am
MM: Too may old movies?
“India is home to at least nine recognized religions. The major religions practiced in India are Hinduism, Islam, Christianity, Sikhism, Buddhism and Jainism. Zoroastrianism, Judaism and the Baha’i Faith are also practiced in India.’
https://www.reference.com/world-view/many-religions-india-6bd1414129861aed
There are nine religions in the Chicago area, including:Muslim, Buddhist, and Hindu (many arms/Shiva).
http://www.pewforum.org/religious-landscape-study/metro-area/chicago-metro-area/
Or, about 26,000 worshipers of Shiva in Metro Chicago. lol I would be careful whom I insult out of ignorance.
deadly on Sun, 13th May 2018 4:49 am
India must have solved their spaghetti wire problem and everything is under control.
crazy wires
Probably not.
India grows good barley for making beer, so they do qualify as a first world country.
India Pale Ale makes them number one.
All things considered, India carries its own weight, doesn’t really need any help from anybody.
Spices, crops, everything a people would want to have good food and a stable society.
And energy, everybody wants electricity, you can tell by how many wires are hanging from the power poles.
India will probably survive and keep going. They do have an army, much to the chagrin of Pakistan. lol
They need to learn how to string wire to houses and businesses, though.
Time to drink some IPA.
energy investor on Sun, 13th May 2018 5:53 pm
The article should have used 200% rather than 20% for Japan’s debt to GDP.
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