The puzzling lure of financial globalisation
Arvind Subramanian | Former chief economic adviser to the government of India, senior fellow at the Peterson Institute for International Economics
Dani Rodrik | Professor of international political economy at Harvard University’s John F. Kennedy School of Government
Business Standard
In light of China opening itself up to “unfettered short-term foreign inflows,” Subramanian and Rodrik analyse the continuing lure of financial globalisation “despite its history of failure”. According to them, almost every major financial crisis of recent times occurred after a country opened up its economy to foreign capital inflows. In fact, one of the reasons for China’s’ sustained financial success was its decision to not accept such capital flows.
According to Subramanian and Rodrick, financial globalisation aggravates “macroeconomic instability, creates the conditions for financial crises and dampens long-run growth by making the tradable sector less competitive”. While the IMF has started introducing restrictions to these inflows, they are done only as a last-minute resort.
A continuing belief in developmental economics attributes underdevelopment to lack of domestic savings which implies that developing countries should attract foreign private capital. This is a major reason that the “dogma of financial globalisation” persists, they write.
In the current global economic slowdown, many developing countries will be compelled to pursue “increased foreign borrowings” and this would only lead to “more volatility…frequent crises, and less overall dynamism,” Subramanian and Rodrik write.
How to fund the fiscal stimulus
Indranil Sen Gupta | Chief India Economist
Aastha Gudwani | India economist, BofA Merill Lynch.
The Financial Express
Gupta and Gudwani write that the recent tax cuts announced by the Finance Minister Nirmala Sitharaman will “cost the government $20 bn (0.7% of GDP)” and funding this move is the immediate concern that needs to be tackled. However, if this funding results in resettling of government securities (G-Secs) then the growth impact of this move “may not fructify in its entirety”.
Gudwani and Gupta, therefore, suggest that this additional borrowing “can be absorbed through higher Open Market Operations (OMO) purchases by the RBI”. They also suggest using the additional dividend by the RBI or by using “surplus balance the Centre has with the RBI”.
The reduction in corporate tax is being “proportioned between the Centre and states in a 58:42 ratio” and this will most probably increase the fiscal deficits of the Centre, they write. This deficit would then be funded by higher borrowings and states will witness a drop of GDP in transfers from the Centre. “This will likely be offset by a drawdown of states’ investments in T-Bills (currently, Rs 950 bn) that will cut down the Centre’s surplus cash balances with RBI,” they write.
Thus, according to Gudwani and Gupta, RBI OMO purchases can absorb this additional borrowing and also “will push up bank liquidity, step up bank demand for G-Secs, and reduce the need for durable liquidity in H2FY21”.
Rural India’s bane: from policy paralysis to a policy vacuum
Himanshu | Associate professor, JNU
Mint
In his piece, Himanshu criticises the government’s economic policy framework which shows a “sparse understanding of the troubles of the economy”. The root of the slowdown, he writes, is declining incomes and consumption in rural India, which macro indicators have been hinting at for a while.
Yet ironically, the Centre’s response is to aid the corporate world. Lowering corporate tax, increasing credit access or sectoral interventions are likely to create “fiscal stress” with little effect on aggregate demand. Not much has changed from the 1980s and ’90s where governments tended to remember the rural economy just before elections, doling out loan waivers to attract voters, he explains.
The government was too preoccupied with its election victory in May to notice the signs of the slowdown and recent knee-jerk reforms show it has “no clue” of what is going on, notes Himanshu. If the last UPA government was in a “policy paralysis”, the current NDA one is in a “policy vacuum”, he writes.
Institutions weakened, economy crippled
M. Suresh Babu | Professor at IIT-Madras
The Hindu
Babu describes how the Reserve Bank of India (RBI), the Central Statistical Organisation (CSO) and the Planning Commission/NITI Aayog have suffered in recent times. Demand and supply factors have been looked at by policymakers while analysing the current economic slowdown, but the role of institutions in shaping these factors has been ignored, leading to lacklustre policy measures.
In a market-centred economy, sustainable institutions are needed to increase efficiency and help during slowdowns. The RBI has been brought under the central government and its independence has been systematically eroded. First, the RBI was sidelined on currency-related matters. Then, as the regulator of the banking sector it was questioned when banks “faltered”. Finally, its reserves were siphoned off.
India’s official data procuring and publishing agency, CSO, has been “crippled”. Data like national accounts to unemployment is often “smothered or repeatedly revised. Data needs “approval” before release, but “veracity of the data is to be tested by researchers and the public who consume the data and not by approving agencies,” writes Babu. NITI Aayog too has completely “lost its character”, as after dissolving the Planning Commission and turning it into NITI Aayog, the government has “lost the space for mid-term appraisals of plans and policies”.
It is time to think about protecting the newspaper. Democracy is at stake
Arghya Sengupta |Research director
Akriti Gaur | Senior resident fellow, Vidhi Centre for Legal Policy
Hindustan Times
Sengupta and Gaur write about how online aggregators have changed the way people consume news. Now, access to news is “quick, efficient” and “widely considered free”. These aggregators benefit readers in the short-term, but have threatened the future of news as their business model is leading to “slow death of the newspaper”.
Newspapers stand for fearless journalism and hard-hitting reporting but are now suffering revenue losses as readers move to online aggregators. A UN report has indicated that print advertising revenue fell from $65 billion in 2000 to $19 billion in 2016. Employment has also fallen by 40 per cent in the past decade.
In the US, the Journalism Competition and Preservation Bill, 2019, helps print and online press negotiate the distribution of their content by news aggregators. In India, aggregators like Google News and Inshorts credit original sources, give hyperlinks and only provide summaries of newspaper content. Whether aggregation amounts to “free-riding, misappropriation or a copyright violation” needs to be evaluated.
However, there is little empirical evidence to accurately determine revenue losses and a declining readership of newspapers due to aggregators. Policy interventions in this space need to be backed by proper evidence. In a democracy, unfair restrictions to either will be “detrimental to the future of news and access to information,” conclude the authors.
Maja Daruwala |Board member and senior advisor, Commonwealth Human Rights Initiative
The Indian Express
The home minister’s recent statements about the days of third-degree torture being over are welcome, as torture has become “endemic” to Indian policing, writes Daruwala.
A recent survey by Common Cause on the Status of Policing has revealed that three out of five police officers believe it wasn’t wrong to beat up criminals, four feel it’s okay to use violence to extract confessions, and one in five even believe that “killing dangerous criminals is better than a legal trial”.
Experts feel that a comprehensive standalone law to criminalise torture and custodial deaths is needed, but most governments have resisted this. India had signed the UN Convention Against Torture in 1997, which signified that the practice of torture needs to be eradicated and “obligates countries to pass laws at home that reflect the articles in the UN law”. But ratification in India has been pending for 22 years. When India was peer-reviewed under the Universal Periodic Review in 2017, 29 countries made 37 recommendations for India to take urgent steps to stop the torture.
In 2010, the weak Prevention of Torture Bill had lapsed and then in 2016, the Law Commission drafted an even more “diluted” version. Actualisation after new legislation is harder. We need human rights courts with specially-trained judges in place. The commitment to eradicating torture requires the police force to have a zero-tolerance for it, concludes Daruwala.