Among the advanced economies for 2008, Japan is likely to witness the maximum contraction in total domestic demand with Italy following at second place. US would register the minimal increase in demand to rank
third with Germany and UK following at fourth and fifth place respectively,
while for 2009; US would witness the largest contraction in total domestic
demand followed by UK (second), Italy (third) and Germany (fourth) with Japan,
at fifth place, to witness a mild increase in domestic demand.
Economic indicators relating to Budget balance as a
percentage of GDP and Public Debt as a percentage of GDP, dictating the scope
of the size and intensity of the fiscal measures to prop up the deteriorating
domestic demand and to intensify efforts to check the unemployment situation in
the country present difficulties for India. Among the G-20 countries, India ranks last (19th) in terms of Budget balance as a percentage of GDP and
12th in terms of Public Debt as a percentage of GDP. Low ranking on these
indicators presents India key challenges to announce heavy fiscal stimulus
package as compared to China which fares better at seventh and third position
for the two indicators respectively.
At a time of rising economic uncertainties, foreign exchange
reserves have gained much larger importance in the present scenario.
|
Among the advanced economies for 2008, Japan is likely to witness
the maximum contraction in total domestic demand with Italy following at second place.
|
In terms of foreign exchange reserves that present a cushion
to protect an economy from speculative capital movements, China (at close to
USD 2 trillion) tops the list with a huge margin over other group members. India is placed at fourth position behind Japan (second) and Russia (third).
As per the income tax structure in the G-20 countries,
corporate tax rates as well as personal income tax rates have been taken to
analyze the standing of the group countries. The prevailing income tax
structure among the group countries has two way implications for the member
nations: The corporate tax rate controls the movement of foreign corporations
globally. It is considered to be a major barrier to entry in international
economics. On the other hand personal income tax rate has a direct linkage to
the household income hence defining consumer demand. In terms of corporate tax
rates, India stands at 15th among the group while it occupies seventh position
in terms of personal income tax rate.
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In terms of foreign exchange reserves that present
a cushion to protect an economy from speculative capital movements, China (at
close to USD 2 trillion) tops the list with a huge margin over other group
members. India is placed at fourth position behind Japan (second) and Russia (third).
|
On the monetary policy stance taken by the G-20 countries
during H2, 2008, the interest rate easing policy among the member countries to
address the falling economic sentiments has been an indication of the
synchronisation of fiscal stimuli and monetary policy to tackle the worst
recession since the Great Depression. India has made significant reduction in
the CRR (350 basis points) as well as the repo rate (250 basis points) during
the period. Measures of such magnitude places India on second position among
the member countries in terms of the monetary policy stance. However, in view
of the prudent interest rate policy followed by the RBI during the first half
of 2008 to have a check on the soaring inflation, further rate cut measures
could well be on the cards if the economic situation worsens.
|
Recently Announced
Fiscal Stimulus Packages
(in billion USD) |
|
Argentina
|
3.9
|
|
Australia
|
17.1
|
|
China
|
586
|
|
EU
|
259
|
|
India
|
4
|
|
Japan
|
295
|
|
Russia
|
20
|
|
South
Korea
|
11
|
UK
and Australia have made biggest rate cuts in H2, 2008. China is third in the list behind India and Saudi Arabia, US, South Korea and the Euro area
countries are next at fourth. Interest rates in US at 0-0.25 per cent and Japan
at 0.1 per cent are at such low levels leaving little scope for further rate
cuts. It appears that the advanced part of the world is going to witness zero
interest rate scenario in the coming year. In terms of the fiscal stimulus
packages announced by the G-20 countries, a push to core infrastructure
activity, employment generation, tax rate cuts to boost consumption have been
announced vehemently to minimize the aftermaths of the worst recession since
the Great Depression.
Where does India stand in the comity of nations, in so far
the Govt. support for revival of economy and exports is concerned is left to
our policy makers and our enlightened readership.
Originally
published in The Stitch Times: March 2009
