Finance & Economics
Finance & Economics
Fair Observer's analysis of important economic and financial issues, events and trends in global markets and the world economy.
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The Indian government needs to target its investments better. Jayadipta Chatterji interviews Rakesh Mohan. Led by the poor performance of the manufacturing sector, India’s economic growth has fallen relative to expectations. The main reason is the government’s fiscal slippages - private investment has decelerated and this is related to a crowding out effect of high government borrowing and consequent high interest rates. The revenue deficit is a pointer to the poor quality of government expenditure, particularly the high subsidies, instead of undertaking expenditure that created long-lasting assets. The revenue deficit is primarily responsible for the fall in savings and...
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By Jeffrey ChenAlthough China is more prosperous than ever before, its unbalanced economic growth has led to significant issues that can no longer be ignored. In 2012, the country must deal with a slowing economy, fallout from the highest-profile political scandal in years, and a major leadership transition this fall, constituting the biggest challenge to Communist Party leadership since the end of the Cold War. Background China's meteoric growth since reforms of the 1980s has been heralded by some as an “economic miracle.” The 2008 financial crisis revealed serious shortcomings in the international monetary system, cast doubt on Washington's development model, and hastened the...
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The inevitable deleveraging of Europe’s banks calls for promotion, rather than repression, of non-bank credit channels as a key growth factor for the European economy. The financial systems in the United States and Europe have long differed on an important aspect. In Europe, most of the credit flows through the banks. In the US the bank channel is less dominant, and borrowers gain access to capital directly by issuing bonds or through “non-bank” intermediaries that do not take deposits and are not regulated as banks. An oft-quoted measure is that in Europe banks represent more than two-thirds of total credit, whereas in the US the proportion is less than one-third. In the...
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Analysis on the current state of the Indian economy, and the government’s monetary policy to control inflation. The unremitting despair of the young orphan Oliver when he asks for more gruel in the Dickensian tale Oliver Twist is an uncannily apt allegory for the situation Indian businesses are in today. The recent union budget and policy announcements by the central bank have not mollified fears of possible economic slowdown. All quarters of the economy, yes sir, are hoping for more – more in terms of measures to ensure long term inflation stabilization, reduction of the fiscal deficit, and a drop in interest rates. All is not well in the Workhouse The Indian economy has, for...
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By Atul SinghBackground Since economic liberalization in 1991, India has seen robust economic growth. This growth has been a result of the partial lifting of the heavy hand of the state. The rolling back of the elaborate system of licenses, regulations and accompanying red tape led to an unleashing of entrepreneurial energy in the second most populous country on the planet. Like the Chinese economy, the Indian economy has been less affected by the global economic crisis than expected. In fact, India has been one of the emerging economies that has driven global economic growth since the crisis. Over the last few months, the Indian economy is facing the tension between controlling inflation and...
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Following the wake of history’s largest and first truly global recession, the European sovereign-debt crisis was similarly precipitated by globalization, the boom in credit availability in the early-mid 2000s, financial deregulation, and by the recession itself. The dilemma has caused drops in major economies’ credit ratings, economic stagnation, heated public and political backlash, unpopular bailout packages and the extensive refinancing of Greece. Despite the global implications of the issue, the euro crisis is still to some extent a regional dilemma, one that reveals several structural paradoxes within the euro zone as a region sharing one monetary policy. Background The...
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By Casper WuiteEgypt's ruling generals have agreed to sign a deal with the IMF for a loan worth $3.2bn to alleviate the country’s financial crisis. The series of measures required by the deal, though, may at best do little to help the country’s development challenges beyond restoring macro-economic stability. At worst, they will be counter-productive to the country's real development challenges. As the clouds of revolutionary dust seem to settle and democratic transition is nearing its electoral end, Egypt is reawakening - to a financial crisis. In the last two years, the Egyptian pound has lost nearly 10% of its value and the country’s foreign exchange reserves have fallen by...
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*[This article was originally published by Knowledge@Wharton on March 19, 2012]. Analysis on and reactions to India’s budget. On Budget Day, India's cricketing superstar Sachin Tendulkar notched up his 100th 100 runs, a world record. In the newspapers the next day, he pushed Finance Minister Pranab Mukherjee's accounting exercise from the lead position. Even the business papers managed to marry the two. "On Budget day, Sachin scores," read the banner headline in The Economic Times. The DNA was equally loud: "Budget bores, Sachin scores." The budget was considered by most to be workmanlike. It raised US$8bn in new taxes. But the Bombay Stock Exchange...
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*[This article was originally published by Knowledge@Wharton on March 28, 2012]. Is the great 30-year bull market in bonds coming to an end? Yes, perhaps -- or maybe not: It depends on whom you ask and how flexible your timing is. While many people think of bonds as conservative holdings, they have produced stellar returns for decades, thanks to the taming of inflation and other factors. A basket of stocks would have returned a mere 19% from the start of 2000 through 2011, for example, while a basket of bonds would have returned about 113% through a combination of rising prices and interest earnings. But many experts say economic recovery could now reverse the process by driving interest...