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Cash crisis in India

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[yt_dropcap type=”square” font=”” size=”14″ color=”#000″ background=”#fff” ] W [/yt_dropcap]orld attention was fully focused on US presidential poll as Republican Donald Trump was leading on November 08 as Indian premier Narendra Modi announced in the night on Indian TV channels about the state ban of currency notes, making life miserable for the people without enough money in hand.

While making the announcement to discontinue Rs 500 and 1,000 banknotes , the government had also announced closure of bank branches and ATMs next day. It also announced the launch of newer notes of Rs 500 and Rs 2,000 from November 10.

India has plenty of money but not got locked in banks, houses, offices, and elsewhere, including hidden underneath to avoid taxes to the government and people of India are unable to use them as government of India has banned currency notes of denomination of Rupees 500 and 1000, causing the first ever serious cash crisis in India.

Modi has indeed declared another surgical attack, now on the helpless Indians.

Demonetization measure is too harsh for the common masses who have very limited resources.

The result is people are not buying things, business establishments have no business, as banks allow only 2000 thousand rupees a day for the peole to withdraw or exchange. New rules are being announced complicating the life of common people while the rich and corporates have their own “channels” of money transfer and expenditures.

The BJP government of Narendra Modi abruptly announced a ban of big notes of denominations 500 and 1000 that played huge role in trade and even ordinary business. In fact, high value currencies have ceased to be legal tender from 8 November midnight when PM Modi announced the new financial measures. There has huge rush since 09 November at the bank branches as customers throng to deposit their Rs 500 and Rs 1000 notes or exchange them with Rs 100/50 notes.

The Modi government explains the measures as being necessary to end black and bad money floating along with the genuine notes, causing inflation, whereas experts say corruption is the cause of inflation and poor quality of life of common people. Whether or not PM Modi would be able to contain the dirty cash and make the value of Indian money strong, people are suffering a lot, while the regime has not been able to control the corporate funding of elections, thereby bring Indian democracy closer to American.

Demonetization effect

The recent demonetization of currency notes reveals the sad state of our public discourse on government policy. The combination of braying anchors on TV channels and opinions on social media show how to mangle a discourse.

Demonetization of high denomination currency has created big problems to common people and law and order situation is being created with police being deployed outside banks to control the queue. The issue has reached the parliament. The Winter Session of Parliament opened on Nov 16 with a united Opposition mounting an assault on the government over demonetization, saying it had led to “economic anarchy” in the country. The opposition parties also demanded a probe by a Joint Parliamentary Committee (JPC) on the alleged selective leak of information before the official announcement. Joining ranks over the raging issue, parties like Congress, JD(U), RJD, SP, BSP, Trinamool Congress, Left and AIADMK slammed the government, particularly targeting PM Modi, for making Rs 500 and Rs 1,000 denomination notes invalid and said the “ill-timed” and “ill-conceived” step had severely hit the common people, the farmers and the poor.

While Lok Sabha was adjourned for the day, the seven-hour-long debate in Rajya Sabha, however, remained inconclusive. The debate in Rajya Sabha continued till 6 pm as there were repeated demands by the opposition members that the Prime Minister should be present in the House to listen to the members. Leader of Opposition in Rajya Sabha Ghulam Nabi Azad said PM Modi, who did not come to the Rajya Sabha, should at least be present tomorrow and possibly intervene.

During a discussion on demonetization, which was taken up after suspension of all business in response to notices given by a host of opposition members, a scathing attack was made on the government which strongly defended the step as one taken in national interest and to end corruption and black money, which it linked to terror activities in the country.

Opposition attack on Modi in parliament

In an all-day debate in parliament today, opposition leaders like Anand Sharma of the Congress said they are not opposed to the reform, but to what they described as the lack of preparation to manage the cash crunch. The government has emphasized that if the notice for the initiative had been longer, the move would not have been effective.

Congress is the major opposition in parliament. Deputy Leader of Opposition in the Rajya Sabha Anand Sharma sought a probe into “selective leakage” of the demonetization move, which he termed a “Nadirshahi farman” (autocratic order). Initiating a debate after listed business was suspended to take up a discussion on the 8 November decision to withdraw old higher denomination currency, Sharma used wit and humor to attack Modi for being insensitive to problems caused to the common man. He asked Modi to state where he got Rs 23,000-24,000 crore, estimated by the International Money Watch Group, for his Lok Sabha elections. He also asked if cheque or credit card payments were made to organize his rally at Ghazipur in Uttar Pradesh a few days ago. Alleging that the information on demonetization was selectively leaked, he said, “Your BJP units have deposited crores (just before the 8 November decision).” Sharma sought to know from the Prime Minister as to “who wants to kill him”, referring to the Prime Minister’s speech in Goa where he had said that with demonetization resulting in “Looting of their 70 year corrupt earnings, they will destroy me, they can kill me”. “There should have been an ordinance for demonetization. But no ordinance was brought. This is a Nadirshahi farman (autocratic order),” Sharma said.

The decision to demonetize high currency notes was leaked to a select few. Secrecy was not maintained on this issue. It was published in a Gujarati newspaper long back and even other newspapers wrote about it,” said Sharma. “There should be a probe into the selective leakage of information,” he said, asking: “What did the government do to prepare for effective implementation of the policy.” He also sought to know from the government which law gave it the right to impose limits on withdrawing money from peoples’ own accounts. “An atmosphere has been created by the government where questioning them has become a parameter to decide one’s nationalism,” said Sharma. He sought to know from the Prime Minister as to from where the “15 thousand crore rupees spent on your mega election campaign come from”. “Did you pay for your recent Ghazipur rally through credit card,” Sharma said mocking the government for asking people to use plastic money for day-to-day expenses. After withdrawing Rs 500 and Rs 1,000 currency notes, restrictions were placed even on foreign tourists who could not get their currency changed.

The Modi government rejected as baseless the opposition charge that there was “leakage” of the 8 November decision that benefited BJP, and said everyone was taken by surprise which is why there are “initial” problems.

The government argues that the honest tax payer is being rewarded as he does not have to worry about his cash deposits. For once the honest tax payer is in a privileged position which is rare and shocking for him.

Finance Minister Arun Jaitley had informed Parliament in August that fake currency was 0.02 percent of the total currency in circulation. If 0.02 percent by government admission is counterfeit currency, how can that be made the base to remove 86 percent of currency in circulation. An undeclared emergency has put common people in grave inconvenience, he said while crime money, ill-gotten wealth and that accrued through corruption or tax evasion is black money. One wonders if money in the market, or in households or with farmers, workers and employees was also blackmoney.

Key opposition leaders

BSP chief and former UP chief minister Mayawati demanded the presence of the Prime Minister in the House to hear out the Opposition parties and address their concerns. Mayawati questioned the government’s preparedness for the demonetization of high-value bank notes, accusing it of spending the last ten months on settling the black money of its people. “The government has said that they spent ten months preparing for this decision. Ten months was a long time to prepare. If they were serious about it, they would have prepared well for all the problems that people are facing today.” “If the government had spent ten months preparing for it, then why do they need another 50 days? There is something fishy.”

While the masses are in pain, PM Modi keeps taking after creating a national crisis and Mayawati said he must be sleeping after taking pills, adding that the poor and the middle classes were the worst sufferers. “It is an immature decision taken in haste and the whole country feels that is an ‘economic emergency’,” she said adding that it was like a “Bharatbandi situation.”

The hardship is real especially among lower income categories that do not have bank account and need cash for emergencies. Their trouble is painful and affects the society emotionally. There is no justification logical or emotional for this pain. An emotional pain cannot be justified by logic, neither should an economic decision rest on emotional arguments. The reason an emotional justification is pulled in is because of the nationalist fervor or color being given to an economic decision.

The nationalistic line or patriotic one is wrong all it shows is the intellectual drought that TV channels suffer from these days. Their desire to kowtow the government line crosses limits of ridiculousness and borders on stupidity. Though the line is supported by those in the government and is detrimental as it will affect economic decisions in the future. People are not stupid to be swept by such fervor. TD will not reduce or remove corruption. The artifice is high and is the favorite line of criticism for opposition politicians. Especially, as the government is introducing a higher denomination Rs 2000 note and reintroducing Rs 500 and Rs 1000.

To understand, TD by itself does not remove black money or will get rid of it. One, it will help to bring more people in the banking system as they stop relying on cash, particularly traders and jewellers. Second, currency as stock is not going vanish anytime, it cannot go away, Rs 500 and Rs 1,000 are also going to come back. This step is a shock therapy to the system. To put the fear in the minds of people who do not pay taxes or use cash to hide unaccounted income. Clever politicians have tried to explain that black money is no longer kept in cash but in gold and real estate.

Like all criticism it is easy. There is no single step or action that can get India rid of black money irrespective of what politicians say. The reason it is black is because the system is not able to capture it. No country has been able to successfully capture it, which is why tax havens exist. TD affects a small percentage of it, but should this step not be taken because it affects a small percentage. Should we wait endlessly until we find that brahmashastra that will destroy black money. If incremental steps help they should be taken.

This shock required surprise, surprise required secrecy that means not many people knew. Therefore the system is still not ready. Hence the hardship! Though the secret argument cannot be used for justifying the hardship as once announced banks need to get their act together. Especially as the nail that has lost the kingdom is the tray in ATM machine that is not able to take a Rs 2000 note.

Yechury Mamata, Mayawati

CPM leader Sitaram Yechury said that of the 130 crore population in the country, only 2.6 crore have credit cards. He took a dig at Modi and narrated the infamous quote of Queen Marie Antoinette during the French revolution who had said that people can eat cakes when they don’t have bread. “We have Modi Antoinette who says ‘If you don’t have paper, use plastic'”. Alleging that a BJP unit in Kolkata deposited Rs 1 crore in Indian’s Bank Account on 8 November, he said “prove me if I am wrong.” He added that Prime Minister was advertising for Paytm while talking about cashless economy.

The CPM leader said 1/5th of the economy is black economy and people who kept black money invested it in real estate, gold etc. That is why the imports surged and stated that it was this PM only who had stated that 95 percent of the black money is stashed offshore and is in safe havens. “PM is cleaning a pond to kill crocodiles but big crocodiles have survived and only small fishes are dying.” He also demanded that corporate funding of all political parties should stop and there should be a system of state funding for elections to which Kurien said “why don’t you move a private members bill in this regard.”

Seeking immediate withdrawal of demonetization exercise, West Bengal Chief Minister Mamata Banerjee met President Pranab Mukherjee along with leaders of National Conference, AAP and NDA ally Shiv Sena and submitted a memorandum voicing serious concern over the crisis arising out of ban on Rs 1000 and Rs 500 currency notes. She said the situation arising out of demonetization has triggered a sort of constitutional crisis.

Expressing concern over the problems being faced by the people after the demonetization move, she said “We have requested the President to speak to the government and decide on this and bring back normalcy in the country. President was once the Finance Minister and knows country’s situation better than anyone else, he will take appropriate action.” Leaders of the other opposition parties including Congress, Left parties, SP and BSP did not took part in the protest march. Describing as “dictatorial and draconian step” the government’s demonetization move, the memorandum has sought its immediate suspension. “Stop harassment of the common people by lifting of all sorts of restrictions recently thrust upon them,” the five-page memorandum said, and added “ensure that supply of essential commodities in adequate quantities be restored in the markets forthwith.”

Before beginning the march from Parliament, Mamata said “The march is to save common people from disaster.” The ban has affected the normal functioning of the household as there is no money available. However, the Shiv Sena differed on the issue and insisted the government to extend the deadline of accepting the old currency notes.

Mamata also said “Those with black money have been supported, but taxpayers are suffering”, and added that the situation arising out of demonetization has triggered a sort of constitutional crisis and financial emergency. Seeking the intervention of the President in the “interest of common people to alleviate the untold suffering, helplessness and financial insecurity that they are facing now”, the memorandum said “withdraw this draconian demonetization measure immediately.” Pitching for a broader campaign against demonetization, involving various political parties, Mamata yesterday met Delhi Chief Minister Arvind Kejriwal. Both the leaders discussed the crisis for about 40 minutes but Kejriwal reportedly expressed his reservation to come along with Shiv Sena on a same platform.

Mamata had approached other parties, including Congress and Left, to join the march against the demonetization of Rs 500 and Rs 1000 currency notes, saying “common people are suffering because of it.” However, Congress and Left though opposing the demonetization move preferred not to join the rainbow platform created by Mamata against the government. Undeterred by the absence of major political parties she marched ahead.

Positives approach

On a day when the opposition launched an offensive against the government over the abrupt withdrawal of Rs. 500 and Rs. 1,000 notes, there was a rare exception. Nitish Kumar, Chief Minister of Bihar, expressed his “total support” for the ban, introduced last week by Prime Minister Narendra Modi. “Fake notes will disappear,” said Kumar in his home state, sharing rare agreement with PM Modi, who has said the reform will attack the roots of black or untaxed money, counterfeited currency and corruption.

The parliament decried the ban on notes as a move that is punishing the poorest and weakest, who suddenly find themselves cashless.

Eight days after the old notes were cancelled, with just a few hours’ notice, banks are swarming with huge crowds desperate to get to the counter or an ATM to collect some new currency. A new version of the Rs. 500 note is still a rarity; the 2000 rupee note is being rejected by many vendors who say they cannot provide change for the high-denomination bill.

Nearly 48 billion dollars have been deposited in banks so far, as people turn in the old notes. And though the lines at banks in cities are long, it is in villages that a crisis is threatened with lakhs who are excluded from the banking system.

For now, people can exchange Rs. 4,500 of old notes for new ones – after this swap, indelible ink is used on the customer to ensure it remains a one-time exchange; upto Rs. 24,000 can be withdrawn per week from a bank account; Rs. 4,500 can be withdrawn from an ATM per card per day. The government has repeatedly said it is working night and day to reconfigure ATM machines, which need bigger trays to stock the new currency. The Reserve Bank of India has also confirmed that it has made special arrangements to help villages by dispatching micro-ATMs

The Positives approach of Bihar CM Nitish should be misunderstood for support for the BJP government at all.

Observation

If the cash crisis, if not controlled effectively, could lead to a serious economic and financial catastrophe making India a weak nation among third world nations. If the government is unable to tackle the black and other flirty money, that could have serious impact on the future of Indian politics.

Moving towards cashless economy was fine but even the most developed economies of US or Europe has not achieved that objective yet. If they had, the US central bank would have stopped printing dollars, European Central Bank won’t be printing Euros and UK central banks would have stopped printing pound sterling.

The move is without preparedness and people will punish BJP in 2019 during general elections. People of five states going for elections including Manipur, Uttar Pradesh and Punjab will punish BJP.

The common people, especially the poor and the housewives were put to great hardship through this move and if elections are held today they will teach this government a lesson, he said, adding that majority of women who saved money through household savings were upset with the move. It shows the shallowness of the TV anchors as intelligentsia. It also shows social media has the ability to influence the trajectory of public debate. It does not portend well for a democracy when the crowd is used as the arbiter for policy. The broad segment of the public discourse can be easily drawn as it is shorn of all nuances and can be easily clubbed into segments.

The hardship is real, but griping about it is not an argument for or against TD. An opinion based on hardship is just that a gripe.

The nationalistic and the ideological jingoists are not too different. As both do not see facts they only see political angles to every policy. They are criticising this step because it will not rid India of black money.

Criticism is always the lowest form of intelligence as it is an argument without a solution. Anybody can make it does not take any effort. Just because there an opinion exists does not make it right.

Today, social media gives every man the means to broadcast their opinion. But if you have a solution with that opinion it may be just a mite more useful. Otherwise, it is just another voice shouting loudly.

Demonetization move, causing hardship for the common people, is an economic decision that has far reaching ramifications. The hardship caused to people is not the reason temporary demonetization should not be done. Please note it is a temporary demonetization (TD). If the measure is hardship government should not take any step that causes it even it is long term interest of the people.

Undoubtedly PM Modi and BJP are now focusing on the assembly poll in UP and next Parliament poll. UP poll results will have impact on the future elections in the country. After the loss of Delhi and Bihar, BJP would be hard-pressed to be seen as the loser of UP also. But BJP has no hopes whatsoever of winning state UP which is now being ruled by the Samajwadi Party (SP) and opinions reveal a plus point for the BSP of Mayawati in UP.

Economy

Long trends and disruption: the anatomy of the “post world” of the COVID-19 crisis

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What will be the economic architecture of the world after the COVID-19 crisis? This question involves understanding the major trends at work for twenty years now.

The world that will emerge from this crisis will be marked by these major trends, which, for some, will be reinforced by this crisis. However, this crisis has created too specific disruptions, in particular in the field of transport and energy. It has also provoked an awareness of the centrality of sovereignty, and in particular of economic sovereignty. Finally, the economic and monetary policies that have been put in place to combat the economic effects of the epidemic and of containment will have long-term consequences on international financial balances.

An acceleration of the change of the world?

Since 2000, we have witnessed the rise of an “Asian bloc” to the detriment of what we might call the “Western bloc”, that is to say the United States, the European Union and the United States. Japan. This Asian bloc is heterogeneous, as is the Western bloc. In each of these bloc politics is the main factor of homogeneity. But, these blocs also correspond to an economic reality: that of the countries of old industrialization against the countries, which it is better to call new industrialization than emerging ones.

In 2000, the China-India-Russia combined represented only 15% of world GDP, while the United States, the European Union and Japan combined weighed more than 47%, or three times as much. In 2020, the two blocks are tied at around 31.5%. If we take into account the immediate effects of the COVID-19 crisis, this movement is even expected to grow. The IMF has made forecasts which indicate that China and emerging countries should recover much faster from the shock of this crisis than the so-called “advanced” countries, ie countries of former industrialization. The world should see the shift to Asia amplify in the coming years.

The death of oil has been greatly exaggerated… (bcc, Mark Twain)

The COVID-19 pandemic has had a profound influence on the energy market and on oil production. The persistence of the pandemic means that air transport, among other things, will not return to its 2019 level before, no doubt, 2024. This implies a weak demand for kerosene as estimated by the International Energy Agency Forecasts of global oil demand and post-crisis economic growth are determined by different assumptions. In the optimistic scenario, there is a rapid economic recovery in a more or less flattened “V” shape in the first half of 2021, but the demand for oil does not fully return to the pre-pandemic trend. In the more pessimistic scenario, oil demand will not reach 2019 levels until 2023, and its growth will remain well below the pre-pandemic trend. The current evolution of the pandemic suggests that we are closer to this pessimistic scenario. These two scenarios also assume that zero-emission vehicles will represent 60% of new vehicle sales by 2040, because investments are high in these technologies. Therefore, they both forecast a slowdown in demand for oil to peak in the mid-2030s at around 105-108 Mb / d. What will be the consequence?

In the medium term, OPEC will have to manage the probable return of part of the 5.7 Mb / d of unused production in OPEC countries (Venezuela, Iran and Libya) and non-OPEC countries (Syria and Yemen). OPEC will also have to deal with the resumption of US hydrocarbon production (particularly shale oil), a recovery that may be slow due to falling investment, as demand and the price of oil rise. US production of hydrocarbons has fallen by more than 2 million barrels / days, due to the closure of existing wells, reduced storage capacity and reduced demand.

The impact of COVID-19 on oil demand will therefore be profound, particularly in the event of a deep and long recession associated with a protracted pandemic. Without aggressive intervention by OPEC, the average crude oil price could thus remain below $ 50 / barrel until mid-2022. During the second half of this decade, supply and demand are expected to move closely towards equilibrium as non-OPEC production, especially from Russia, begins to decline and US hydrocarbon production reaches a low. tray. The price of oil is expected to rise to around $ 80-90 / barrel (optimistic scenario) or $ 70-80 / barrel (pessimistic scenario), even without OPEC intervention.

As we can see, however, despite all voluntarist proclamations one can hear here and there, oil will remain a major source of energy for at least the next thirty years.

The return of economic sovereignty

A more direct change brought about by the COVID-19 pandemic is the realization of the importance of economic sovereignty. Of course, a number of countries, China, Russia, but also the United States and India, were acutely aware of the importance of this sovereignty. The European Union, for its part, had adopted a very negligent attitude on this subject. The strong disruption of international trade caused by the pandemic caused a real shock on this point. Of course, there is no question of returning to more or less self-sufficient economies. But, the economic, social, and even strategic damage caused by free trade policies are globally more taken into account today.

This will accelerate the return of nations and the crisis of multilateralism that we could already observe. The economy is once again becoming a breeding ground for strategy. Through the policy of economic sanctions, which the United States has used and abused since well before the election of Donald Trump, we are witnessing an acceleration of the fragmentation of the world economic space. American pressure on Huawei, or on the Chinese social network “Tik-Tok” is an example. De-globalization had passed from the stage of possibility to that of concrete fact; with the effects of the pandemic it will pass from that of fact to that of major fact.

This return to economic sovereignty induces the great revenge of politics over “technology”, the triumph of decisions over the automaticity of standards. However, ” technology” is embodied today mainly in economics and finance. The pandemic heralds the return of sovereignty, and being sovereign is above all having the ability to decide. The countries will then be referred to logic of bilateral relations, or even to regional logic. It will then be necessary to seek allies.

The questioning of the “global” character of the companies linked to the INTERNET, the desire of several countries to build their “digital sovereignty” is an example of the struggle that is looming for economic sovereignty. This resurgence of politics does not mean that, in our societies, certain spaces are not governed by the technical order, and that there are spaces dominated by technical legitimacy. But, these dimensions will now become second in relation to the political, which will recover its rights. The economic and the financial will once again become instruments at the service of politics. What the political will do with it remains to be determined.

A Debt apotheosis or an end of debt?

A final point remains the explosion of both public and private debts due to the pandemic. In most countries, the COVID-19 crisis has resulted in the collapse of various barriers to the expansion of public debt.

The latter has therefore increased to finance the fall in tax revenues during the confinement period but also the considerable additional public expenditure generated by the crisis. In addition, there are liquidity facilities, consisting of guaranteed loans, equity investments and the like. The result of all this is that the indebtedness of states (especially in the Western bloc) and that of companies will increase considerably by 2021. This debt will not be covered by an increase in taxes because it would imply a deep recession. Reducing public spending beyond 2022 will hardly be a possible solution, for the same reason.

These debts will therefore be absorbed by central banks, in one form or another. The same will be true of a large part of corporate debt. What will then be the consequences for the currencies (mainly the US Dollar and the Euro) of these policies? What will also be the medium-term consequences on the equity and bond markets?

One of the most striking consequences will be the influx of liquidity as a result of central bank action, while production will remain relatively depressed and the outlook for investment will be uncertain for several years. Currencies should therefore experience significant fluctuations. The current downward trend in the share in central bank reserves and the US dollar and the euro in favour of the group of “other currencies” (Sterling, Yen, Australian and Canadian dollars, Renminbi) should therefore accelerate.

Its to be noted that the Euro share went down significantly under the level of older currencies included in the Euro and that the group of “other currencies” significantly increased their share since 2010.

The economy of the “world after” the COVID-19 epidemic will therefore present both the characteristics, in a more accentuated form, of that of the world before but also a certain number of ruptures linked to this epidemic. This combination of strong trends and ruptures will result in a “de-globalized” world which will reorganize itself on the basis of bilateral alliances or regional groupings.

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Economy

Flattening the Eastern Hemisphere through BRI: The Geopolitics of Capitalism

Rida Fatima

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The Pivot of Asia: Conceptualizing the Peaceful Rise

The Belt and Road Initiative is a trans-continental multibillion-dollar infrastructural network linking China to what Bernard Cohen called the ‘Eurasian Continent Realm’ and the ‘Atlantic-Pacific Maritime Realm’. This economic expansion is diametrically opposed to the US hegemonic expansion. China with its economic and military development claims a peaceful rise which is non-aggressive and multilateral in its nature. Its policy of peaceful rise and development conveys to the international and the regional community, the willingness to endorse other state’s sovereignty, peace, and stability.

The BRI is considered as the ‘Project of the Century’ encompassing around 70 states, stretching around 3 continents, and affecting 60% of the world population. It is a global development agenda on the part of China to address the infrastructural gap, capacity gap, and technological gap. It is aimed at re-routing the inter-continental trade through China as a pivot. This economic saturation of China is being materialized by two of its mega-projects as indicated in figure. 1.

Overland SilkRoute Economic Belt (SREB): Consisting of six corridors for the trade of goods and services in and out of China.

Maritime Silk Route (MSR): Consisting of a chain of seaports also known as the string of pearls to the guard shipping routes.

These two projects of the BRI indicate the scope and size of its socio-economic implications for the region and the security-based ramifications for the international community.

The BRI Development Agenda: From Globalism to Regionalism

The process of globalism has been effective for the developed world however, the benefits of development and modernization have not trickled down equally in the peripheral regions of the world. That is why the world is witnessing the rise of new regionalism based on a multidimensional approach to deal with the global transformations which negatively affect the political economy of the developing and underdeveloped states. And this system is very aptly backed by China. With a history of the tributary system, China can integrate the regional states is a system of loose diplomatic relations based on shared benefits, mutual trade agreements, and interconnectivity.

The old tributary system of China is in a state of revival through the BRI. The cardinal principles of these two asynchronous simultaneous developments are indicated in figure.2

This system of new regionalism holds China as its central state through a spherical worldview rather than a vertical view purported by the US. The prospects of this system for the socio-economic prosperity of the eastern hemisphere are imminent. It is the reincarnation of the Flying Geese Model of development utilized in the development and modernization of the East Asian economies. According to this mode, wages increase vis-à-vis economic development causing industries to lose their comparative advantage. And China appears to be mitigating this through ‘going out’ for cheap labor. This new system shall reshape the following spheres which were previously dominated by the entrenched center-periphery discrepancies of West imposed structural imperialism.

Domain of InfluenceProspects of BRI-led Regionalism
SocialThe BRI led regionalism can increase the societal viability through redistribution of wealth and sharing of technology The investment pattern can show a shift from security funding to a development-based expenditure It will revamp the employment opportunities in the region and the net incomes will rise to threefold to fourfold Would lead to cross-cultural understanding in solving collective action problems within the regionThe infrastructural development will reinvigorate the interest of the regional community on the issues of environment and sustainability
EconomicConflict prevention through comparative advantage-based development A move away from dependency culture systematically induced and maintained by the international financial regions of the World Bank and International Monetary FirmWould enhance the collective bargaining leverage of the developing and the underdeveloped statesWould ease and emancipate the terms of trade which have mostly been disadvantageous to the marginalized statesEconomic development strategies and projects will become stable, consistent, and acceptable due to regional continuities
SecurityThe regional security regimes can be consolidated Collective anti-terrorism and counterterrorism strategies can be devised and implemented Regional monitoring bodies can provide effective security input to the already exiting international organizations like the FATF, UN, etc.

The shift from the globalism to regionalism offered by China is both comprehensive in its nature and appealing to the states of the Eurasian region and even extending to other regions including Africa. However, a study by Brantley Womack uses a rational choice rather than a cognitive psychological approach to understand the Chinese nuanced tributary system in form of the BRI. To him, not the Confucian morality that dictates the Chinese foreign policy of win-win approach and peaceful rise but the security dilemma which leads to a relative accommodation of the underdeveloped states to avoid the coming of the new anarchy.

Reshaping the Regional Value Chains: The SRM Mechanism and Spatial Fixes

The entire functioning of the BRI which targets the socio-economic advancement of the Eastern hemisphere is based on Surplus Recycling Mechanism (SRM) and Spatial Fix Mechanism. The underlying logic of the BRI and its investment initiatives is indicated in these two processes. These are targeted for three major purposes of growing industrial output, increasing labor employment, and accumulating financial capital. Though highly effective, both the BRI mechanisms for infrastructural development indicate intricate fault lines which can roll-back the major socio-economic gains of the mega-project by raising international skepticism. They indicate a move towards the geopolitics of the infrastructural development with little regard to the regional states. This criticism has been echoing in the US and the regional skepticism is also on the rise. So, the adverse socio-economic ramifications of the BRI based on the fault-lines of these two mechanisms are given below and there is a need that China becomes more transparent about the strategic connotations underlying its benign investment initiatives.

Some of the adverse impacts these mechanisms of the BRI could have on the socio-economic aspects of the region of the Eastern hemisphere are stated below:

Economic Ramifications

  • It will wage a new war of capital accumulation between the Eastern hemisphere led by China and the Western hemisphere led by the US. This dichotomous rise will affect the marginalized states of the region drastically as also indicated by the US-China trade war where the financial market came on the verge of collapse.
    • The peripheral states of the region might not wholly benefit from the development as it might appear as a way of China’s debt-trap diplomacy and the states might turn assertive in refuting China’s role in the region.
    • The flattening of the region based on capital accumulation needs bringing down barriers which can lead to a contagion effect even the Chinese economy falters.
    • The policy gaps in the inter-regional network can only work through a highly transparent, robust, and monitored system, which lacks inmost states of the region.

Social Ramifications:

  • The regional contagion can also spread pandemic conditions as observed during the coronavirus crisis.
    • Unlike the South East Asian region, there is no cultural emulation in other parts of the Eastern hemisphere and China’s cultural assertiveness might raise national and cultural opposition to China’s enhancing role in the region.
    • The eastern hemisphere might just end up being a captive market if the productive capacities are not utilized in the peripheral region. This will end up in neo-colonialism the global inequality will take nuanced shape but shall persist.
    • The intermingling of the workings with weak governance structures can lead to gender-disparity, sexual-based violence which can only end with the grassroot level reforms are set as a precondition for development.

These impacts of BRI can drastically revamp the social mobility of the citizens, increase interconnectivity and raise inter-cultural tolerance however, the downside of it can have major blowbacks to the projects as a whole and to the region it covers. Thus, it is high time that China addresses such issues on mutual understanding and cooperation to mitigate the negative socio-economic ramifications.

Regional and Extra-regional Dynamics:

All the infrastructural development projects for decades are accompanied by geostrategic and geopolitical motives. Such developments in a highly politicized world are determined by geopolitical constraints. The BRI is no different, it offers avenues for advancement, but it goes in hand with China’s geopolitical and geostrategic goals of ensuring capital development and security in a volatile political environment. Hence, the mega project of BRI is under intense scrutiny from both the states within the BRI and those outside of it.

Intra-regional discrepancies

The BRI project takes around 82% of the total gain and a big chunk of which goes to the high-income states of the region including China and East Asian states. This trend might increase inter-regional discrepancies with uneven globalization with some benefiting more and others remaining mostly stagnant. These unequal benefits will lead to negative spillovers feeding inter-regional skepticism.

Extra-regional refutations

The impact of the BRI led flattening of the region holds negative consequences if the links with the non-BRI states are not properly maintained. The internal trade of the region shall show consumer cost reduction, lowered trade barriers, and trade facilitation. However, the non-BRI region will face increased trade diversion which might become the reason they rebut the BRI led development.

Conclusion

The BRI project is a new mode of regionalism with a different means to the geopolitical ends. It identifies the flattening process to be a derivative of the geopolitics of globalization and capitalism. Though the socio-economic impacts of the project of the century are vast and all-encompassing yet the risks like debt sustainability and governance can adversely lead the project in another dimension if not addressed through a system of communication, coordination, and transparency. Though the menaces of capitalism cannot be completely mitigated due to its structurally enmeshed nature. But the BRI shows the alternative mode of its practice based on authoritarian capitalism of China. The world awaits what benefits it will reap. How equitable will the ‘equitable globalization’ be and how peaceful will the ‘peaceful rise’ be?

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Economy

Protectionist headwinds in the US Trade Policy under Trump Administration

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At the end of the First World War, US led internationalism was initiated by the then President Woodrow Wilson. When we look deeper into the origins of the first Great war, it clearly shows signs of deep rooted animosities, triggered by culture, race and delusioned nationalism. Once the war ended, Woodrow Wilson embarked on a utopian idea to make the world truly an international place. The breed of politicians in America and its allies the British Empire and France, supported the idea and laid the foundations of world’s internalist movement, Never in the history of mankind a world sets sails on such an ambitious project to make the world a global stage for commerce where every aspect of human life will governed by a certain set of rules, which will form the basis of rule based order. A journey of rule based system was not smooth and its first test came in the form of a second world war, a war which was again fought on the basis of rogue nationalism and race. The victors at the end world war II was committed to forward the idea of globalism, United States was the only country which rose from the ashes of the world war II with minimal damage, it first supported a war ravaged Europe with a Marshall Plan, and then they together embarked on a path to liberal internationalism. The United States journey in making the world truly a global place is unique and unprecedented, with all the allegations of doublespeak and forwarding its own agenda of undisputed global power, United States global project was indeed a sincere effort to govern the world through supranational democratic institutions, early examples of such bold agenda were United Nations and Bretton Woods institutions.

Journey in and after the cold war

Obama Presidency : At the end of Bush Presidency, the protectionists were bracing for an extreme stance on new winners in the Global economy and especially China, commonly denoted as Frankestien at that time. President Bush in 2001 granted China PNTR a permanent normal trading relation status. Many trade hawks in the US think that this decision was a turning point, which helped China to become so big. President Obama was an overt globalist and He in his presidential campaigns regularly highlighted the importance of globalization, that how and why we need to appreciate new winners in the global economy, he cited computational technology as the main driver behind a dispersed value chain rather than concentrated one. Obama in his presidency supported the Trans pacific partnership TPP deal, and supported the idea of equal opportunity in the global economic system. He repeatedly highlighted the importance of globalization and termed as the force which can never be rolled back.

Trump Presidency and a wave of non stop protectionism

President Trump in an his election campaign termed TPP trade deal as a “rape of America”. When he won election, he issued endless warnings to trade partners and threatened to eliminate NAFTA the North American Free Trade Agreement, NAFTA now USMCA, United States Mexico Canada Agreement was later rescued at last minute negotiations, which took place in several rounds spanning over many months. Trump launched a full blown trade war against China, and its allies in Europe accusing them of using America to their advantage and stripping the US of billions of dollars. He is now pursuing a most hawkish policy in the trade realm to disband the world trade court also known the World Trade Organization. This anti trade policy is aimed at reviving the US industrial base, which according to many experts is a lost cause in the era of global value chains.

References :

Panda, A., 2020. Bush Gave China Permanent Normal Trade Relations Status With The US 15 Years Ago. What Did That Change?. [online] Thediplomat.com. Available at: <https://thediplomat.com/2016/12/bush-gave-china-permanent-normal-trade-relations-status-with-the-us-15-years-ago-what-did-that-change/> [Accessed 4 June 2020].

Nytimes.com. 2020. Trump Says He Plans To Withdraw From Nafta. [online] Available at: <https://www.nytimes.com/2018/12/02/us/politics/trump-withdraw-nafta.html> [Accessed 30 June 2020].

BBC News. 2020. No Way Back From Globalisation – Obama. [online] Available at: <https://www.bbc.com/news/world-europe-38006937> [Accessed 1 July 2020].

Foreign Affairs. 2020. Reconsidering Woodrow Wilson: Progressivism, Internationalism, War, And Peace. [online] Available at: <https://www.foreignaffairs.com/reviews/capsule-review/2009-05-01/reconsidering-woodrow-wilson-progressivism-internationalism-war> [Accessed 1 July 2020].

Wrap.warwick.ac.uk. 2020. Globalisation And Ideology In Britain : Neoliberalism, Free Trade And The Global Economy – WRAP: Warwick Research Archive Portal. [online] Available at: <http://wrap.warwick.ac.uk/49332/> [Accessed 1 July 2020].

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