A meeting and its results
Observers of the G-20 summit - whose tagline ’stability, growth, jobs’ acknowledged our ongoing global slowdown - didn’t expect much to come out of the meeting. Since it ended however, a wave of positive press has followed. One good thing that has come out of it is that the IMF is likely to change its composition to reflect the power of emerging countries like India, China and Brazil. There is also some applause surrounding the fact that leaders have pledged around $1.1 trillion towards fighting the recession, but of this, $500 billion is through the IMF, and half of that money was in the works before the meeting.
Another big question is how exactly will such a money stimulus boost global growth. I’m somewhat sceptical of the ability of state-provided funds to drive extended growth in markets, if they are not accompanied by policy changes. Money flowing into an inefficient, badly regulated market system only strengthens entrenched interests and makes existing lobbying groups stronger and better-funded.
The Indian government for instance, has already funnelled stimulus money into the economy in 2008-09. without adding in policy corrections, and much of this cash has been aimed at extended credit through already existing farm schemes (which typically favour farmers who own mid to large landholdings) and financing for existing SMEs and industry groups, while doing nothing to make business easier for new or innovative firms who struggle even more for capital and against red tape in a weaker economy. Downturns and growth slowdowns cannot be patched with notes of cash alone - these will only drive cycles of boom and bust.
Tags: G-20 summit, stimulus package
April 7th, 2009 at 6:10 pm
Last few years witnessed a growth boom in emerging economies as a result of financial boom in the developed world. The western consumers, especially US went on a spending spree with the help of excessive mortgage funding and huge credit card limits which in turn was possible because of investors for securitised instruments and availability of credit default swaps. All these have collapsed in a heap. Western economies will revive only when the real economy starts contributing to growth and GDP. For that far sighted policy reforms are required. It is time IMF started advising developed economies on how to run their economies. They may also study the functioning of economies like India, especially financial regulation.
The India growth story was a great beneficiary of global spending, capital and borrowing. Millions of jobs were created through outsourcing and economic activity increased with the flow of FDI, FII and private equity and huge borrowings through ECB and FCCB. With the drying up of these flows India is also in difficult times.
Banks have excess liquidity as they find borrowers not worthy of credit. They should look beyond their traditional borrower group and start financing new, innovative and labour intensive activities of smaller scale.
After all the voice of only those who have lost jobs will be heard by everyone and not of those who never had a job in the first place.
April 7th, 2009 at 11:17 pm
I am puzzled we are suddenly worthy of a place in the IMF. How much did we have to pay to bail out the US economy?
April 8th, 2009 at 2:07 pm
I’m somewhat sceptical of the ability of state-provided funds to drive extended growth in markets, if they are not accompanied by policy changes.
Absolutely agree. Your skepticism is well justified. Policy changes are the most vital ingredient in the recipe for recovery. Indeed, I would go so far as to claim that throwing money at the problem acts as a palliative and thus delays the absolutely necessary reforms. As Parkinson had observed, when money is no object, the only economizing is done in thinking. Too much money in the system not only corrupts it, but more damagingly, it makes people too lazy to think and solve the systemic problem.
April 11th, 2009 at 1:07 am
The most stark and undeniable reality of the last few months has become forced the lexicographers to reshuffle the dictionary with the most frequently used terms - recession,slowdown,downturn,bailout,stimulus all have become cliche. The most blaring usage of these terms have been beaming out of the US. A slurry of activities,meetings and decision making from the Obama administration has been focussing on bringing back the limping US economy back to track. US economy being the bellweather of the international arena, the whole world can converge together at a site to discuss and bring out solid steps to recovery,but without the US intervention(despised by many though) we might end up treading on the same grass.
All goals of all the summits,IMF et al definetly need the US nod without which things become viscous to move with agility.
April 12th, 2009 at 12:18 pm
Ours is a badly regulated market system & any financial stimulus without understanding the real nature & cause of this slowdown may prove futile. If we are again expecting the kind of fiscal atmosphere preceding this crisis it will be a mistake. Jobs which indicates redistribution & not re-allocation cannot be a main slogan as mentioned in main theme along with stability & growth but mere a byproduct of it. It will be important to see how many of us get rather than how much one gets. India should not be considered as a victim of free economy because she never adopted it.
June 4th, 2009 at 9:05 pm
A recent NASSCOM Study talked about an addressable market size of US$ 315 Bn (by 2015) in the Software Product Space. The big question which goes begging for an answer is where is the pervasive innovation ecosystem and platform which can help support them in their “fragile” Idea-to-Prototype stages? Yes I think I absolutely agree with the observations. There is no dialogue let alone a policy to imagine and then nurture an innovation ecosystem in India.