India, the next Global profit story 0 1032

China and India are two large countries with India occupying a greater part of South Asia. China has its territory spanning across East Asia. The two countries together, account for 36pct of global population. China has sustained double digit GDP growth for 30 years up to 2010. India on the other hand, has grown at half the Chinese growth-rate over the same period. China has consolidated its global position becoming the second largest economy in the global landscape. In contrast, India is counted the seventh largest economy as of now, having bypassed many established economies in the traditional developed world. The economic production values and population size of these two countries make them a significant catalyst for driving global growth trends.

Many have spoken about China and its phenomenal ascent on to the global economic stage. It is common knowledge now that China would dislodge the USA from the number one position in the global ranking of economies and would come to dominate the world GDP by 2030. There is no doubt that China has been the most extraordinary growth story in the history of mankind. It has become a classic model of development economics too. For liberating 600 million people from poverty in a span of 40 years, building of course on the socialist foundations laid down since 1949, is an achievement no other democracy can boast of.

The China growth story i.e. profit story, shows that state enterprises need not necessarily be a hindrance to growth, rather they can make the difference; that public investments on infrastructure provides the big push; that import substitution is as important as exports to exploit to full advantage the advances in technology, investment and trade for economic progress; and that state-guided market forces are development friendly. This success story and underlying business cycle fundamentals continue to unfold at a rapid pace across all asset markets. Many economic commentators and businesses alike share the sentiment that China’s dominance would continue in the next 50 years.

A careful analysis of past trends seems to highlight another view. I tend to argue that India would be the next Asian miracle in terms of its Global growth story i.e. profit story, and would match China in 30 years i.e. by 2050. Imagine the emerging Asian economic landscape with China and India free of poverty, with full employment and giving leadership to a new economic order, replacing the hegemony of the West.

Population projections indicate that by 2050, India would have a population of 1,730 million whereas China would reach a population saturation point of 1,400 million (East Asian Forum.Org). These two countries combined would account for 36pct of the world population by this time. This would be a rich population, with new aspirations and changing lifestyles.

Demographic data show that India would be endowed with a relatively younger population compared to that of China (Table-1). India’s young workforce with knowledge and skills would be India’s strength. Those between 15 and 64, are expected to rise from around 64pct of its population in 2009 to 70pct in 2020. Meanwhile, China’s relatively cheap and semi-skilled cohorts of population are expected to start declining from 2014, resulting in labor shortfalls by 2050. This would mean that a more intellectually hungry, urban based middle class would take over the driving of India’s profit story and would unleash a wave of innovation in the sphere of manufacturing, technology and music and film industry. One expects an Indian resurgence in the horizon waiting to explode on the world stage.

By 2050 the Indian economy would be in a much stronger position with leading brands such as Tata, Maruti, Godrej, Infosys, Amul, Bajaj, Ashok Leyland, Asian Paints, Dabur, Apollo Tyres, Britannia, and the zestful Bollywood influencing the world on a much larger scale than what we have seen so far. In this expected scenario India would outpace China by growing at a compound rate of 8.50pct (Table-2) and would reach USD 57.2 trillion with a per capita income of USD 33,700. China in the meantime would struggle to consolidate its current growth momentum over the next 20 to 30 years. It would grow at a compounded growth rate of that of an advanced economy, growing at 3.3pct reaching 47.6 trillion USD dollars with a per capita income of USD 33,900. When compared, the numbers added together are staggering. Additionally, when we look at the merchandise trade turnover between China and India the data indicates these two countries would account for circa 30pct (USD 100 Trillion) of world merchandise exports by 2055 from its current 14.5pct.

In fact data indicates that China’s economy is already showing signs of losing steam. Slowing down has commenced, with 2018 data indicating that it grew at the weakest pace since the first quarter of 2009. This slowing down has been caused by the higher base effect, growing costs of production and labor costs are now seeping into the real economy. Chinese companies have begun to search for other Asian and South Asian economies to house their industries affected by high domestic production costs. This is an indication of how China would now be challenged in the competitive capitalist environment. A declining profit story would only compound the longer term growth trajectory (Figure-1). Added to the Chinese woes is their new breed of westernized economists who are now showing signs of losing sight of its competitive advantage obtained over the golden years of development.

Undeniable Asian Dominance in 2055

The rise of Asia spurred by India and China is inevitable, therefore Asian economies/policy makers and businesses should gradually look at their business models, cultural and geopolitical linkages and synergies thereby carving out their growth plans to suit the new world order by 2055 given that the US will be the only western country to make it into the top five economies in the world.

Whatever the superficial debates that are out there, the ground realities are undeniable and must be taken seriously or we will definitely be left behind in the dinosaur era. It is therefore crucial that Sri Lankan policy makers value both India and China as they are in the Asian continent with significant consumer markets and a burgeoning middle class fueled up with an appetite for modernity. These consumers will be pleasantly drumming up the tune of the Asian Century of World Dominance and we must be ready to dance to the beat. This outcome is indeed sweet music to the ears of Asians (Global Sri Lankans). Unfortunately, many of Sri Lankan and Asian business models are ill-prepared for this eventual reality of the Asian Century.

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BiZnomics Global Out-front Comments Off on BiZnomics Global Out-front 880

Article By: BiZnomics Research Team

USA Monetary Policy-Fed Dilemma

BiZnomics-Global-Out-front-03Federal Reserve Chair Jerome Powell mentioned that  US Monetary policy is “well positioned” to support the strong labor market, which is just now starting to benefit workers on the margins. He added that “the benefits of the long expansion are only now reaching many communities, and there is plenty of room to build on the impressive gains achieved so far,” a close look at the adjustments to employment data suggested the labor market may not have been as strong last year as previously thought, and thus we could once again witness a shift for lower interest rates. The September data released by the Bureau of Labor Statistics indicated a downward revision of the estimated job creation numbers. The agency said the economy added 170,000 jobs a month in the 12 months through March 2019, half a million fewer jobs than previously estimated. Powell in fact commenting on the job data numbers mentioned that “While this news did not dramatically alter our outlook, it pointed to an economy with somewhat less momentum than we had thought,”.

Germany Consumer Demand Shines

The mood among German consumers rose unexpectedly  heading into December, a survey showed this week that household spending will continue to prop up growth in Europe’s biggest economy at the end of the year. Record-high employment, inflation-busting pay hikes and historically low borrowing costs have turned household spending into a steady and reliable driver of growth in Germany, helping to cushion its export-dependent economy from trade problems. The consumer sentiment indicator, published by the Nuremberg-based GfK Institute and based on a survey of around 2,000 Germans, improved to 9.7 from 9.6 in November. A Reuter’s poll of analysts had predicted a stable reading. GfK said a subindex measuring economic expectations jumped as Germans became more optimistic about the growth outlook due to “tentative signs of easing” 

 

Australian economy continues to struggle

Wage growth in Australia looks to be stuck in the slow lane and it will take a sustained fall in unemployment to lift it to more economically desirable levels, a top central banker said on Tuesday. In a speech on employment and wages, Reserve Bank of Australia (RBA) Deputy Governor Guy Debelle said there was growing evidence that wage growth had become entrenched in a 2-3% range, down from the former 3-4% norm. This trend has been weighing on household incomes and spending, as well as dragging on the economy more broadly. “A gradual lift in wages growth would be a welcome development for the workforce and the economy,” said Debelle. “It is also needed for inflation to be sustainably within the 2–3% target range”. However, he held out little hope for acceleration any time soon, noting the bank’s liaison with firms showed 80% of companies expected steady wages growth and only 10% anticipated anything faster.” The more wages growth is entrenched in the 2s (2-3% range), the more likely it is that a sustained period of labour market tightness will be necessary to move away from that,” said Debelle. The central bank has cut interest rates three times since June, taking them to a record low of 0.75%, in part to try and drive unemployment down toward its goal of 4.5%.

China looks fragile

BiZnomics-Global-Out-frontOil prices slipped on Tuesday on concerns about economic growth and fuel demand as uncertainty remains about the ability of the United States and China, the world’s biggest oil users, to agree a preliminary deal to end their trade war. Brent crude futures were down 5 cents at $63.60, after rising 0.4% in the previous session. West Texas Intermediate crude futures fell 9 cents to $57.92, having risen 0.4% on Monday. Top trade negotiators from China and the United States held a phone call on Tuesday morning, China’s Commerce Ministry said, as the two sides try to hammer out a preliminary “phase one” deal in a trade war that has dragged on for 16 months.  “Oil traders remain hopeful a trade deal will get signed,” said Stephen Innes, chief Asia market strategist at AxiTrader. “Still, the lack of clarity around the tariff rollbacks, which is the key to economic growth and bullish for oil, continues to somewhat cloud sentiment. “China and the United States are “moving closer to agreeing” on a “phase one” trade deal, the Global Times – a tabloid run by the Chinese Communist Party’s official People’s Daily – reported earlier.

India Cuts Monetary Policy Rates for the six time

BiZnomics-Global-Out-front-01

The Reserve Bank of India will cut interest rates in December for the sixth time this year, and again before July, according to economists in a Reuters poll which forecast those reductions would either marginally boost the economy or have no impact. Currently the most aggressive major central bank in the world, the RBI has cut rates by 135 basis points this year to 5.15%, but inflation has remained low by historical standards and policymakers have barely moved the needle on growth. The Indian economy expanded 5.0% in the April-June quarter on a year earlier, its slowest annual pace since 2013, and was expected to grow 4.7% last quarter, according to the latest Reuters poll, taken Nov. 20-25.That was significantly lower than the 5.6% rate predicted in the last poll, and would mark six consecutive quarters of slowing growth, a first since 2012.

It also comes despite a recent series of fiscal stimulus from Prime Minister Narendra Modi’s government, which was re-elected in a landslide in May. “Further rate cuts are likely to have a limited impact on the economy as cost of borrowing is not the pressing issue. The lack of risk appetite and fragile sentiment are holding back fresh investment in the economy,” said Sakshi Gupta, senior India economist at HDFC Bank. “While further interest rate cuts would support growth at the margin, we need to see a turnaround in sentiment to restart the investment cycle.

Cont..

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Political Leadership-A Matter of Age 0 815

Political Leaders a Matter of Age

By: Dr. Kenneth De Zilwa

Perspective

Age has become an increasingly discussed topic when it comes to our political leaders (i.e. Parliamentarians), the arguments have been that we are unduly saddled with older politicians that make the parliament system meaningless as it prevents the infusing of young energetic and more progressive leaders in to governing the country. Well, yes this is definitely one aspect that is on the table and it seems to be the dominant view shared by many of whom are frustrated about the responsibility and accountability of these members albeit their ability to comprehend the demands of the younger generations. Therefore the proposers of this debate are eager for changing the status quo. On the other hand there are those who contend that age is just a number and the ability of the person irrespective of one’s age is what matters in a participatory democracy, for people have many routes to representation and redress.

In order to really get to the bottom of this debate we need to analyse and understanding the dynamics of the global public office and the trends in life expectancy.

Scrutiny of Public Office

The evolution of democracies has meant that parliaments are indispensable and now are deemed to be an integral part of the institutional framework that represents the people’s democratic choice. The choice of selection (be it liberal or conservative or its varying compositions) is of course based on their own perceptions of what the future should be transformed into considering the stage of its economy, social and environmental concerns and the overbearing global geopolitical trends. Irrespective of country-specific rules, the role of parliamentarians, (of both men and women), remains the same: to represent the people and ensure that public policy is informed by the citizens on whose lives they impact. If we look at the political context of each country we find a unique disposition in their selection process, however, parliaments and Parliamentarians do face a common challenge, that is, how best to consult citizens and keep them informed about parliamentary deliberations and how such deliberations would eventually shape the people’s lives (for better or worse, as public policy cuts both ways). What is important here is that the relative maturity of parliamentarians is called into focus, as the people are now looking for responsibility, accountability and also the bottom-line, of delivery.

The UNDP Global parliamentary study undertaken in 2012 indicated that there are 46,552 Members of Parliament (MPs) in the world. Of which there are 8,716 women parliamentarians, or 19.25 pct.  of the total number of MPs. While the global average number of parliamentarians per country is 245.China has the largest parliament with 3,000 members in the Chinese National People’s Congress. The world’s smallest parliament is in Micronesia, with just 14 MPs.  While the global average age of a male MPs is 53 the average age a woman MP is 50. Sub-Saharan African MPs have the lowest regional average age at 49 with Arab countries the highest at 55.

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