Showing posts with label GDP. Show all posts
Showing posts with label GDP. Show all posts

Saturday, April 13, 2013

What the downgrade means for the world?

The American ego has been shattered once again. And this time by the global credit rating agency Standard & Poor’s, which has stripped Uncle Sam of the highest rating for the first time in 70 years. So, what does it mean for the rest of the world?

Washington’s latest drama ended with an agreement to raise the federal government’s debt ceiling in exchange for yet-to-be determined cuts in federal spending of up to $2.4 trillion. But a brief wave of relief at the deal quickly faded as Fed data (released a few days later) highlighted the economy’s slow start to the third quarter of 2011, and Standard & Poor’s (S&P) lowered its rating of US sovereign debt (on August 5, 2011) one notch to AA+ from AAA, stripping Uncle Sam of the highest rating for the first time in 70 years.

The fact that the other two rating agencies, Fitch and Moody’s, did not downgrade US debt might take some pressure off its bond market, but then that does not change the reality that the US recovery has lost momentum. This implies that the global impact of the downgrade is bound to be heavy, if not in the near future then certainly in the long run. No doubt, the exact consequences of the downgrade are difficult to predict, but then considering the size of the US economy, its Treasury market, and the dollar’s status as a reserve currency, the cut to Uncle Sam’s credit rating is bound to spill over throughout the global economy. Reason: While the nation’s budget deficit (for FY2011 the federal budget deficit is estimated at $1.645 trillion, over 10% of GDP from just 1% in 2007) and debt load (as of August 16, 2011, the total public US debt stood at a whopping $14.618 trillion, about 103% of US GDP, and more than $1,30,000 per US tax payer) are out of control (the highest since World War II), President Obama’s recently released 10-year budget plan doesn’t generate the much-needed confidence that the economy’s fiscal problems will be resolved anytime soon.

Even the $2.4 trillion cut on government spending (agreed upon by the Congress on July 31, 2011) over the next decade will not take the US where it really needs to be. In fact, a recent analysis by the Congressional Budget Office (CBO) infers that if US wants to maintain a debt to GDP ratio at current levels up to year 2085 (to avoid scaring off investors), it would require this beleaguered nation to cut its spending, hike taxes, or a combination of both, by an amount that equals 8.3% of GDP each year for the next 75 years. That translates to $15 trillion over the next decade, way above what Obama and the Congress are considering. What’s worse? Lawmakers have agreed on just over $900 billion of the cuts as of now; the remaining $1.5 trillion will be determined by a congressional commission (made up of six Republicans and six Democrats) by late November. If the commission fails to recommend the cuts or Congress votes down their proposal, the federal budget will be reduced automatically by $1.2 trillion, with cuts evenly distributed across defense and discretionary non-defense programmes. This will further worsen the already deteriorating debt situation.


Source : IIPM Editorial, 2012.
An Initiative of IIPM, Malay Chaudhuri
 
For More IIPM Info, Visit below mentioned IIPM articles
 
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Monday, April 8, 2013

B&E Indicators

Private charity contributions rise in India
Although the human conditions in India remain difficult for many, the attitude towards giving has certainly started to change. In fact, as a percentage of GDP, private charitable giving in India has increased 50% since 2006. Today private giving totals 0.3-0.4% of GDP in India. However, the country still lags behind when compared with the developed world. For instance, private giving in US accounted for 2.2% of GDP in 2009.

But, it’s still below the global standard
A prime reason for the disparity is that individual donations in India still constitute only 26% of all private contributions, way below the global standards. While in US individual charitable donations total as much as 75% of all private giving, in UK, it’s 60%. Moreover, the wealthiest Indians are still donating much less than (1.5-3% of annual income) their US counterparts, who contribute about 9% of their annual incomes.


Source : IIPM Editorial, 2012.
An Initiative of IIPM, Malay Chaudhuri
For More IIPM Info, Visit below mentioned IIPM articles

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Tuesday, February 5, 2013

US BANKING: DEBT HANGOVER

Having paid a price for their ‘irrational exuberance’, economies in general, and financial institutions in specific are suffering from a hangover of their own mistakes, says B&E’s Gyanendra Kumar Kashyap

It’s true that S&P 500 Index’s 64% jump since March 2009 has made investors richer by restoring $5.4 trillion to their wealth, but the figures are not proof of growth problems to come. The fact that the treasury has recovered two-thirds of TARP investments as well as $17 billion by means of dividends & warrants is certainly good news. But at the same time, both Fed Chairman, Ben Bernanke and his Treasury Secretary, Timothy Geithner should keep in mind the downside of the stimulus binge, while rejoicing over the fact that the May 2009 stress test results have helped financial institutions raise over $140 billion in high quality capital & over $60 billion in non-guaranteed unsecured debt (and hence the repayment). Such bailout bursts pump up growth initially, but the macroeconomic hangovers can carry on.

Even assuming some budget trimming, the IMF expects government debt in advanced G20 economies to reach 118% of their combined GDP by 2014, up from 78.2% in 2007 (just before the economic crisis). For the Japanese economy (whose deflationary hangover is world-renowned) the public debt is forecasted to exceed 110% of GDP in net terms in 2010, and will represent 225% of GDP in gross terms. Getting to a more sustainable 60% level will involve raising taxes & cutting services. And here lies the greatest problem.

In an environment where debt is large and growing, low interest rates are preferred by nearly everyone: the government, bankers and... everyone. The desire for low interest rates will put incredible pressure on the Fed and the central banks across the world to keep rates low. Raising taxes to reduce debt may delay the recovery process, while trimming spending will in all probability erode the safety net and damage competitiveness in the long run. Apparently, the road to repairing balance sheets is likely to be a long and winding for both the economy and the financial system.


Source : IIPM Editorial, 2012.
An Initiative of IIPM, Malay Chaudhuri
and Arindam Chaudhuri (Renowned Management Guru and Economist).

For More IIPM Info, Visit below mentioned IIPM articles.


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Tuesday, October 16, 2012

Plans stuck in books

India’s education system, be it the primary level or higher education, remains in shambles, the UPA has provided little more than lip service, says ANIL PANDEY

Education plays a major role in any country’s progress. However, India’s leaders do not seem to believe in this philosophy. Despite being one of the ten fastest growing economies of the world, 34% of the world’s illiterate population resides in India. The UPA had promised to spend 6% of the total GDP on education. However, during the course of the last five years, this figure could only reach 2.8%. Out of this too, only a paltry 1% has been spent on elementary education. Even our HRD minister, Arjun Singh is more interested in reservation politics, instead of improving the quality of education.

The very fact that the UPA government has been continuously reducing the allocated budget on elementary education goes a long way to show their lack of interest. Under the Tenth Five Year Plan, out of the total budget allocated to elementary education, 85% had to be spent by the Centre, and the rest by respective state governments. However, in the Eleventh Five Year Plan, this allocation came down to 50:50. Interestingly, the central government, instead of spending the amount itself, has been leveling education cess on tax payers and doing away with its responsibility. In the year 2008-09, while the central government has collected over Rs.180 billion via the education cess, they have spent only Rs.131 billion on elementary education.


Source : IIPM Editorial, 2012.

For More IIPM Info, Visit below mentioned IIPM articles.
 
IIPM : The B-School with a Human Face
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Friday, October 12, 2012

FOREIGN ASSISTANCE: UNUTILISATION FEES

Indian politicians make us proud again; we pay for unused moneys

The biggest chunk of this unutilised foreign aid (about 37%) was meant for infrastructure development like the urban road development. This fact is even more evident after scrutinising of the performance of the incumbent UPA government when it comes to construction of roads. Agriculture, environment & forestry, power & sanitation account for a further 30% of the same unutilised foreign aid. Ergo, the underutilised foreign assistance seems ironic given India’s present economic condition (India’s forex reserves have come down by $60 billion in 2007-08. Even the fiscal deficit in the current fiscal has been about 6% of GDP against the planned 2.5%; and of course, the GDP’s paining too). India needs huge investments and in quick time. But lousy government attitude is reflected at both the central and state levels, especially in the ‘planned’ lack of cooperation between them. Paying a penalty during these times should be considered nothing less than a criminal offence. Er, why’re we not surprised that no politician is worried about being accused of a criminal offence?


Source : IIPM Editorial, 2012.

For More IIPM Info, Visit below mentioned IIPM articles.
 
IIPM : The B-School with a Human Face
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