Global Economic Framework Current Affairs - 2019

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World Bank: South Asia Economic Focus, 2019

The World Bank recently released its South Asia Economic Focus, 2019. The report says that Bangladesh and Nepal are growing faster than India. However, it assured that India is still a fast-growing economy. India is relatively hit hard by the recent global economic slowdown.

The report is titled “Exports Wanted” highlighting the export potential of the South Asian region being not used to the fullest.

Key findings of the report: India

  • The projected growth of India in 2019 according to the report is 6%. However, India is expected to recover gradually. The report said that the growth rate of India will reach 6.9% in 2021 and 7.2% in 2022.
    • In 2016-17, the growth rate of India was 8.2%
    • In 2017-18, the growth rate was 7.2%
    • In 2018-19, the growth rate was 6.8%
  • The domestic demand (the major driver of growth rate in India according to the report) of the India has slipped. The private consumption is growing at the rate of 3.1%. It was 7.3% last year
  • The manufacturing growth dropped to below 1% in the second quarter as compared to 10% last year. The reason for the drop down is mainly due to the global slowdown in their investments
  • The industrial output growth increased to 6.9% due to increase in construction and manufacturing activities
  • The growth in agricultural sector and service sector was 2.9% and 7.5% respectively
  • The Current Account Deficit of India widened from 1.8% in last year to 2.1% this year
  • 80% of the causes of the economic slowdown is coming from international causes.

Key findings of the report : South Asia

  • South Asia remains the fastest growing region in the world, despite of the report’s estimation of growth in South Asia to fall to 5.(% in 2019.
  • The exports growth of South Asia accelerates and import growth is slowing. The growth of imports has declined by 15 to 20% in the region. Under these circumstances the GDP growth is expected to accelerate
  • South Asian countries are exporting only a third of their potential
  • The growth rate of South Asia was 7.7% in 2016, 7.2% in 2017 and 6.9% in 2018
  • Among all the countries India and Sri Lanka showed the lowest growth rates
  • Foreign Exchange reserves declined in South Asian region
  • Food inflation decelerated in the region. It was stable around 3%. The prices fell mainly due to good harvests.

Key findings of the report: Country wise growth rates

  • In Nepal, the GDP growth is projected to be 6.5%. The growth will be backed by construction activities, tourist arrivals and higher public spending
  • In Afghanistan the growth is expected to reach 3%. It will be mainly due to improved farming conditions and assuming political stability after elections
  • In Sri Lanka the growth is expected to soften to 2.7% in 2019. IF supported by recovering investment and exports, political uncertainty dissipated and tackling security challenges the growth is projected to reach 3.3% in 2020

Key Findings of the report: Trade Policy changes affecting South Asia

  • Import tariffs to protect domestic industries
  • Trade tensions between India and US
    • US imposed tariffs in steel and Aluminum imported from India. India in response to the move, postponed the retaliatory tariffs on selected US products like chickpeas, walnuts, Artemis, lentils, etc.
    • India had benefited greatly under the GSP – Generalized System of Preferences that gave 2,00 products duty free access to the US. Around 5.7 billion USD worth goods were covered under GSP in 2017. In 2019, the US withdrew its GSP following the market access strategy to open India’s market for US products.
  • India – Pakistan trade tensions
    • The MFN – Most Favored Nation status was withdrawn after the Pulwama attack. The custom duties on all goods imported from Pakistan was raised to 200%. It is expected that Pakistan will retaliate imposing tariffs on Indian goods.
  • Trade war between China and USA
    • The garment industry of Bangladesh has benefited immensely from the ongoing trade tensions between China and USA.

Capacity Augmentation to Successfully Deliver the G20 Presidency

India will preside and host the G20, or Group of 20 nations meeting in 2022. G20 provides a unique opportunity for India to transform from rule-taker to rule-maker. Being a host India would set an annual agenda, wielding vast direct and indirect influence on the G20 nations’ economies.

To exploit this opportunity to the full extent, India must address organisational challenges, where the country has an infrastructure, management and intellectual gap.

Organisational Challenges

The organisational challenges before India are:

  • G20 summit brings together several global leaders with their attending delegations and independent experts. Since it is a small powerful group it demands good airports, accommodation, conference facilities, and communications infrastructure all year round.
  • G20 is tasked with leading and managing the global economic agenda for the year. It cannot be a task of a single ministry or agency. Various ministries and regulators must come together in contributing to the formulation of global financial regulations.
  • The logistical requirement for G20 is monumental and unprecedented for India. G20 demands an energetic secretariat to organise over 150 high-level ministerial, sub-ministerial and sub-forum meetings through the year; at least 50 task forces lead scores of meetings including those by sub-forums for think tanks and business, content management, negotiation and feedback processes and developing and executing the year-long agenda.
  • India needs to augment its intellectual capacity to be able to deliver inter-disciplinary research on the international monetary system, global financial architecture, global trading system, global climate, energy and sustainability issues.

The global economic framework is largely driven by the West, and increasingly by China neither of which are suitable for an India. G20 presidency has given an opportunity for India to take the lead and give direction to global economic policy framework. If India doesn’t augment its capacity to set the agenda, India would again be reduced to passive rule-taker, not rule-maker or designer of global economic rules.