Flip Flop In World Economy

The oil crisis has hurt and adjustments made as the value of the rupee has cushioned Indian economy. But now the exporters are feeling hurt and they demand tax breaks. The world today is reeling under the threat of recession and the World Bank has put a stop to its lending spree. India on the other hand is looking for a nuclear deal and new technologies to meet the energy needs of tomorrow.

by LALIT SETHI

India might appear to be on a roll in many areas and in a mess in an equal number in many

others. That’s life of a nation; of its people. It may be the best of times. It is also perhaps the worst of times. Good for some, bad for many others; not so good nor bad for an equal number. That’s life, Life in general, life in economic terms, life in terms of wealth, individual, national and worldwide. Why is this so? Perhaps it has always been so.

It has been boom time, with ups and down, every decade. The stock markets and the economy have been flip, flop. But India’s resilience still makes it somewhat immune. There is a huge internal market of 300 to 400 middle class Indians. It is growing and so is China’s and there are several other Asian, Latin American and African nations coming up even if not all of them equally fast. So India and China and all of these new nations have some kind of protection from a steep fall all of a sudden. The energy crisis or the oil shock, with crude floating between $93 and $99 and racing to $100 have created a new crisis for all nations, but with adjusted inflation, it is being said that it is like $75 a barrel of ten years ago and many nations growing fast are learning to live with high costs. At the same time, the oil cartel of 11 nations led by Saudi Arabia is waking up to the threat of recession and trying to keep crude price below $95 during the winter by increasing output and expecting it to drop in the summer when heating needs in cold climes diminish, if they do not vanish. India is hurt by the high price of crude, yet cushioned by the rising rupee value: it was Rs. 51 to the American dollar and in three years it is now around Rs.39.50. But the exporters of goods and services are hit hard. They want tax breaks. Some have been given, but they want many more. Will the government help them out? It is clearly reluctant.

There may have been a myriad of things like crony capitalism in Asia and Asian financial flu, mainly in the South East, and even Japan. Japan, which was a $4 trillion economy ten years ago and half the size of ten times larger America, slipped down to $3 trillion but did not lose the world’s second largest economy. But crony capitalism will always be there. Only it may not be massive. High interest rates will at times save banks from unrecovered debts. That is India where in spite of Reserve Bank curbs, lending spree continues.

But banking reforms in Japan and aid to South Korea and other nations in South East bailed them out, but it took a decade to recover. Latin America, especially Mexico, was in a mess. But Big Brother America was around to pick up the tab. What are friends for, friends who covet your cheap labour, even if they are illegal immigrants. What is President Bush there for? He would like to regularize all 16 million of them so that his Texan, Spanish speaking roots can help the Grand Old Party he leads remain in office for ever and ever and so that no one will question his decisions. Past, present and future, all rolled in one.

In the area of economy, world currencies and energy prices because of man’s excessive mobility, human wanderlust and devil may care spending spree of the rich and famous and easy availability of cash courtesy credit card or plastic money, human desire has been taken to dizzy heights not just in the land of lure that is America or Europe for that matter, but also in Asia, Africa, Latin America and Australia - Asia as if there is no tomorrow, thanks to the never, never or ever new discount sales, be it Diwali, be it the American Black Friday, be it Thanksgiving, be it Halloween or Christmas and New Year or spring and autumn, there is always an excuse to eat drink and be merry and don new clothes and jewels or try and buy a new hat or a new car or a 4x4 truck or hatchback.

The world’s banks have been on a lending spree too. Until now. And now they seem to have come to grief. Why? They had ready cash for all comers. When the comers were not as many as they wanted, they wooed who had no right to borrow, who had little or no income. They had no capacity to repay, but perhaps just ability to buy bread, butter and jam, may be at Wall Mart and the even cheaper and more crowded, but less heard outside of America, the K Mart. But the banks were flush with cash. Every cent they had must be put to use, must be invested, So in cahoots with the housing and real estate guys, they devised ways of looking for anyone in a suit or jeans and above 21 and perhaps a job or some kind of work to help him buy a house or a small apartment and condiminiums by the millions. There was a fast buck to be made, no matter how risky. So all this debt was insured many times over to hedge the risks. But the bucket of debt overflowed and the real estate guys and banks and other lenders were left holding the can, the leaky can, which could not hold any water, or in this case, risk.

It is in this light that India seeks to go in for nuclear energy so that it can generate ten per cent of all the power requirements. It is in this light that India wants to take the fast track for dozens of new technologies in all areas and even grow jatropha in wastelands to meet as much of blended fuel needs of motor vehicles and go in for non conventional sources of energy, be it hydride, be it biogas, small hydrous, geothermal energy from the sea and tapping solar energy for water heating, for cooking and for storage in massive batteries. The previous President, Abdul Kalaam, tried to make his palace, Rashtrapati Bhawan, almost fully reliant on solar photovoltaic even though the cost may have been very high.