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Title India-global developments
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Article by Lakshma Reddy S
Category Advocates
Content

global developments-contraversy of growth vs inflation in india:

Recent events as the after math of 2008 global fiancial crisis,more particularly ,growing concerns about US and European debt as well as sovereign debt crisis situations and further more recent down grading of US credit rating from AAA to AA+ stage and its likely effect on the global confidence of US dollor as world reserve currency and the likely impact on indian economy and polity and the what policy ought to be adopted against what policy is being adopted is the point for consideration in this brief article.

Theorically, If there is a perfect global free competitive markets across all political borders,there is no possibility of any global financial or economic crisis situation as the rational behavour of owners of factors of production with perfect information on prices of production of all factors of production move to places of investment destination which allows them reap the profit maximisation to bring about global equalisation of profits, and wages rents or interest on capital and dissipate the crisis situation. this law is applicable with domestic markets as well as global/internationall markets.

A genuine global efforts to dismantle the trade obstructive political borders across all countries to promote global free markets under a global sovereign preferably reformed UN while not much disturbing the local automous city states,tribal states,nation states with guaranteed civil and political rights to their own citizens to bring about a genuine global citizenship on earth, to distribute the gains of tecknology to all global citizens irrespective of national origin should be the political agenda of new generation politics.

But in reality, the perfect competitive market environment is neither available any any country or global economy and imperfect comeptitive and infact monopoly practices at the instance of non state as well as state actors are all pervading across global national borders. No country is exception to this rule except the relative degree of free competitive markets and with it, its concomiitant legal structures encouraging or discouraging the global free competition. India was and is more afflicted, though better since 1991 policy reversal, with the imperfect competitive markets than the global average.The growth and inflation,corruption is to be dealt with in the light of this basic parameters.

Given the political and economic parameters and demographic composition of global population with their own traditional prejudices and aspirations, India should act within the crisis period to meet the global challenges, towards realisation of its potential energy through appropriate policy prescription. It should ever review its political ,administrative structures,instituions,leadeship questions, econnomic institions, controlling property structures, both existing legal and constitutional provisions so that no wastage of national energy on unproductive things takes place.

US has the best constituional and legal machinery fitted for a nation state but has outlived its utility in the face of globalisation challenges and the politicians and public opinion have refused to change their political outlook to go along with globalisation process by sticking to national interests in opposition to the tidal wave. The global financial crisis in US and Europe is an offshoot of this mindset not to change to globalisation phenomena with same speed of its own tecknology towards more global free competitive markets in all factors of production and its persistence in pracising the more pronounced protectionism in all areas of market economy and only encouraging the free competetion in banking and fanancial sector as is manifested in the attitudes of US and Europe stands in Doha round negotiations in WTO on agricultue,on movements of sevices,outsourcing, through restrictive immigration laws, through restricitve tecknology tranfers and intellectual propety issues, on aid to millennial development goals etc, and more particularly its attitude towards UNO,UNsecurity council democratic reforms.This lesson should be kept in mind by all law and policy makers in all countries across globe including India aspiring its own wayof global leadeship.

Often more bloated than reality, The objective fact is that indian economy is mere about $1.45 trillian GDP worth with huge potential to emerge as a leading country.The reality is its economy is less than many tyny countries by population and geography like UK,france,germany,italy and even the emerging south korea and per capita terms it is less than many african countries.therefore the stakes of global competetion including in times of crisis periods as against the india in terms uncertainty of tecknology,productivity,growth,and its distributive entitlements to large sections of population to realise it potential canot be understated and people should not be misled by oppurtunistic corrupt, flybynight type dishonest politicians with their misleading statements contrary to to objective facts and not to oblivous of daunting challenges ahead. people should try to clean the political parties,encourage free competetion,eliminate dynastic , corrupt,self aggrandising political aspirants and chose to elect a global visionary leadership who can steer clear the immideate daunting challenges ahead in the face of impending global deep disruption of economic and political processes as an off shoot of US and european economic debt issues as well as sovereign debt default situations.

Now debate is raised how much inflationary situation is good for the growth and whether the present inflation at 8to 9% is is against the growth and what steps are being taken and ought to be taken to control the inflation to spur the growth.

I have presented two articles nay three connected to this subject. one is on the "rise of petrol prices and policy options", second on the "corruption in public life, its sources and remedies" and the third one on "lokpal bill how to go about it" to clean the public life by creating suiatable institutional remedial structures to protect public interests and prevention of coruption in public life. those measures are necesary to control the inflation and stimulate the growth and clean the public life.

one aspect should not miss the attention. it is the RBI decision on rate increases.the reason stated is to control the inflation.This is absolutely wrong. the causes of inflation lies in externat induced petrol prices over which india has no control and therefore, the withdrawal of further money from money markets increases the borrowing costs to productive units making the indian companies incompetitive in global market places.It also makes the market demand for goods and services contract, making the indian companies to bear the overhead costs for inventroy apart from decreased rate of profits. when interest rates in around the world markets are still howering in lower rates, it may encourage the flight of capital to other places making the stock markets starve for funds.The net result of RBI decision is to bring about parrelell economies of inflation side by side with deflation i.e stagflation due to the external induced inflationary conditions unless the growth rate is so robust to absorb the external induced price rises and still create the employment and demand. the projected reduced annual growth rate at 7to 8% is still a hope but in the face of recent international developments more particularly the down grading of US credit rating to from AAAto AA+ more cautious approach needed . This needs review of RBI decision.

 

The revolutionising telecommunications through internet technology has brought unprecedented riches to america and overflowing its coffers by the end of Clinton presidency, and globalisation more particularly the fincial intergration through new tecknology has reached its zenith making the US and european Banks and financial institutions as the only global hubs commanding overwhelming global confidece of investors, but its abused by US and europe and never responded to to the calls of changes to demands of globalisation of free markets for global political instituions to regulate the global markets with the same speed it went ahead with financial integration and glonalisation.With huge money flows to global financial centres like London,Newyork, switzarland,and other places of tax havens,they turned the money to local real estate and housing subprime markets in the name of public interest to provide housing to all at through away pricesi.e interest rates with no or inadequate securities and when supply exceeded the local demand and the already affixed in immovable physical assets in land and housing , and bubble broke up, there was no way to go than to borrow more money to maintain its own credit worthiness. many unfortunate global fiancial institutions like Lehman brothers fell victims of this government and central banks folly when they were not provided with government guarantees like many other similiarly placed banks and financial instituions including the insurance companies.but what happens with government gruarateeing the private and other public institutions debt in public interest, it merely postpones the evil day with the only hope of higher growth rate to wipe the debt obligations and likey default and which higher growth did not happen and the D-day is happening.One way to overcome the lack of local demand for housing and realestate is to open the borders through liberalising immigration laws, invite global migration as a concommitant of globalisation of financial markets but they are refusing and infact tightening the immigration laws in the name of its local identity, safety and security, resulting in stalemate and loss of their face in global markets and its economic political effects. every country to note this lesson and work for the global political institutions with UN as federal sovereign to regulate the global commerce and movement of people without loss of local identity and self rule.Indian leadeship to keep this lesson in its international political behaviour to keep its economic interests go with tandem on globalisation.

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