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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

Connectivity now. Boosting flows of people, information, energy, goods and services

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Northern Dimension

On April 8, St Petersburg hosted the 12th Northern Dimension Forum. This forum, established in 2007, is a major annual corporate business event for cooperative policy and brings business directors and potential investors from Russia and the European Union including the Baltics, and Scandinavia.

The forum was organized by the Northern Dimension Business Council in cooperation with the Association of European Businesses, the Graduate School of Management at St Petersburg State University and the Skolkovo Moscow School of Management.

This forum was devoted to the theme: “Connectivity now. Boosting flows of people, information, energy, goods and services.” It was attended by over 400 representatives of Russian and foreign business circles, government agencies and scientific, education and non-governmental organizations.

Leading business experts of the partnerships of the Northern Dimension, the Institute and the Association of European Businesses discussed topical issues and opportunities for promoting cooperation in environmental protection, the circular economy, energy efficiency, transport and logistics, healthcare digitization, efforts to overcome the aftereffects of the coronavirus pandemic and creative industries.

As expected, the forum helps to take another major step forward in discussing many strategic spheres of business between Russia and those regions. There were plenary meetings as well as sessions working groups. Despite the contradictory signals between Russia and the European Union, it was another opportunity to have some fruitful dialogue, especially in the current difficult conditions, – develop solutions on a wide range of cooperation issues in the North of Europe.

On the other hand, business institutions and the entire system of economic relations are still evolving for these years, indicating that there is no alternative to reasonable cooperation. It is however necessary to find common business language in the fields and other spheres of crucial importance for international cooperation.

Russian Foreign Ministry’s report pointed out to a diversified and multifaceted nature of regional cooperation in Northern Europe. It said the important components include the programs of cross-border and interregional cooperation between Russia and EU countries (Poland, Lithuania, Latvia, Estonia, Finland and Sweden), plus Norway.

There are programs underway within the framework of the current budget cycle that involves over 500 Russian project partners, and new programs are being prepared for the next seven-year period.

They reaffirmed their willingness to broaden versatile and mutually beneficial cooperation for the sustainable development of Europe. It emerged from a number of reports during the forum that trade and economic relations are now remarkably expanding between the European Union and Russia.

Over the years, the business growth has been driven by the efforts of the business community. This has also to do with the quality of economic exchanges and investment, businesses’ interest in expanding to new markets, and their confidence that these markets provide drivers for economic growth. Admittedly, trade decreased for various reasons since 2013, it then reached $417 billion, but later shrank to a mere $200 billion.

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North Macedonia’s Journey to the EU

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macedonia

Prime Minister Zoran Zaev’s new cabinet is confronted with a number of economic challenges, exacerbated by the economic hit to the global economy caused by the pandemic In 2021, North Macedonia will take economic decisions that will shape the course of the country’s future.

The issues Skopje faces

Despite a modest population of 2-million, North Macedonia repeatedly makes headlines, often due to apparently  intractable disputes with neighbouring countries. Athens’s trade embargo imposed on North Macedonia in the 1990s marked the start of a 27 year deadlock between the two countries, which ultimately stalled North Macedonia’s accession to the EU. Only recently did Skopje resolve the dispute with neighbouring Greece over its official name which Greece had previously taken issue with due to the fact that ‘Macedonia’ is also a region of Greece, and the use of this name was interpreted by Greece to be an assertion of territorial ambitions in the region.

This dispute affected the country’s other diplomatic ventures. In 1999, North Macedonia was one of the first post-Yugoslav signatories of the NATO membership action plan, only to have its accession vetoed by Greece in 2008.  Ultimately, North Macedonia’s Stabilization and Association Agreement with the EU has not been the diplomatic catalyst that Skopje hoped would ease  localised tensions and draw it into a closer relationship with Brussels.

Under the leadership of Nikola Gruveski (2006-2016), corruption and state capture were endemic in North Macedonia. Gruveksi was averse to opening negotiations with mainstream governments in Greece and it was not until the centre-left Social Democratic Union of Macedonia ousted  Gruveski out of power, that there was a breakthrough. Gruveski’s successor, Zoran Zaev, capitalised on Greek Prime Minister Tsipras’s reformism to broker the controversial Prespa Agreement which settled the name dispute. Two years later, North Macedonia was finally admitted to NATO, demonstrating that Greece was the final hurdle to NATO membership.

A tamed economy

However, North Macedonia soon found that NATO membership was not a passport to joining the EU. Internal ethnic tensions have created friction with EU member states. Relations with Bulgaria soured during the election campaign for July 2020 during which the campaigns of both main political parties played on anti-Bulgarian sentiment..Zaev managed to gain power by agreeing to a coalition with the main part of the Albanian minority.  The new cabinet’s economic hurdles, specifically fiscal redistribution, could be exacerbated by renewed ethnic tensions between the Slav majority and the Albanian minority. Should tensions reach the levels of the 2001 civil conflict, the deepening of this fracture would   slow down reforms and deter investments.

Bouncing back after the fall

The Balkan countries suffered greatly during the Great Recession due to their proximity to the Greek economy at a time when Athens navigated the worst slowdown of recent history. As Greece’s second largest export partner, the RNM was particularly hard hit(Figure 3a). The region had barely entered recovery before lockdown measures crippled world economic growth. In addition, North Macedonia’s small internal market is heavily reliant  on external demand which the crisis has depleted. In Q1-Q2 2020, exports fell by 22.3% and industrial production by 14.6% compared to the same period of the previous year. Thus, GDP fell by 14.9% in Q2 of 2020 and another 3.3% in Q3 contrary to the  projected 3.2 percent growth (Figure 7). Whilst forecasts suggest growth of 5.5% in 2021, the unpredictability of the pandemic’s economic influence may yet compromise this figure.

Meanwhile, rating agencies downgraded North Macedonia’s national debt, in turn raising financing costs. the RNM’s debt was downgraded by some rating agencies, raising financing costs. Fitch, the American credit rating agency, as well as  Moody’s, another US-based credit rating agency, both value North Macedonia’s debt as a non-recommended investment asset to be reserved for short-term gain. Since May 2020 the outlook has been negative, suggesting the situation will worsen. Yet, with one of the comparatively smallest debt-GDPs of the region, these ratings are still the best in South-Eastern Europe after Bulgaria meaning the RNM has a relatively solid economic base (Figure 4).

The country’s effective response to the pandemic is in part the reason that North Macedonia is economically stronger than some of its neighbours. The caretaker government introduced a furlough scheme, worth approximately 5.5 percent of GDP, as well as a helicopter money initiative. Going forward, the government is prioritising policies that will stimulate economic growth such as slashing parafiscal charges and cutting VAT. Yet, since North Macedonia lacks the economic resources to commit to long-term reform, recovery will be slow.

North Macedonia’s Shifting Demographics

North Macedonia is contending with mass emigration in tandem with declining fertility rates  (Figure 5) — both of which reduce human capital. The official estimate of two-million residents is dubitable, with some experts hypothesising an actual figure of approximately 1.5 million. Inaccurate projections of a state’s total population jeopardises effective government decision making. In the RNM, where the resources are redistributed amongst ethnic groups pro quota, this makes fiscal management particularly difficult. If, for example, the proportion of Albanians of the total population was lower than estimated, then this group will be receiving more public resources that they are entitled to.

Given that the EU acts in a starkly-protectionist way by restricting trade with third countries, greater cooperation is in the RNM’s interest. In fact, Brussels could reduce trade barriers in the context of a stronger association with Skopje even before the latter formally joins the Union.

There are steps the government can take to encourage citizens not to emigrate . The first and most crucial step would be to improve the education system. Overall, North Macedonia spends much less of its GDP than the average EU country on education. As a result, few people complete their secondary-level education, and therefore either end up in low-paying jobs or unemployed, andare forced to emigrate for work. Another step would be investment in the underfunded Research and Development (R&D) sector. In fact, North Macedonia’s budget allocates only 0.36% of GDP to R&D, compared to an EU average of 2.2% and neighbouring Bulgaria’s 0.77%. Research and development is essential to creating high-paying  jobs, driving productivity, and boosting the economy through innovation and market competition.

Infrastructures as the drive for future growth

The silver lining in North Macedonia’s economic strategy is infrastructure development. This especially true for roads and highways. Grueveski’s administration was instrumental in the investment into road infrastructure,  starting works for two new highways in 2014.

Still, roads can be rather useless if they do lead nowhere. Thus come trade infrastructures. In addition to new road, the building of new border checkpoints and crossing points with Greece and Bulgaria, will bolster the trade infrastructure that North Macedonia shares with the EU, thereby driving trade with a global economic powerhouse. These investments will also reduce the RNM’s dependence on the Yugoslav-time north-south arteries, which currently present a barrier for the development of the “functioning market economy” that is a requirement for EU membership. To achieve this goal, the RNM needs to improve, road connections towards the west (with Albania) and the east (with Bulgaria, an important trading partner). Building better connections within the country and with non-Yugoslav neighbours will boost the country’s internal cohesion by making it easier to move from one part of the country to another proving supplemental infrastructures to foster international trade.

Figure 6 Highways represent a key segment of the RNM’s investments.

A secondary and related benefit of improving connectedness with EU trade routes is reduced economic dependence on Russia. This should reduce Moscow’s potential diplomatic leverage in future disputes in the region. As a matter of fact, pulling out of Moscow’s orbit is almost a precondition to full membership in the EU — which would bring in more funding opportunity and increase financial stability. Yet, Russia’s main asset is not trade tout court, but energy. In fact, the Balkans serve as  a strategic crossroad for oil and gas coming from Moscow and Baku through Bucharest and Ankara. Thus, North Macedonia should also consider developing its energy infrastructure as a route to closer integration with the EU. In order to reduce the Western Balkan’s dependence on Russian fossil fuels, the region needs investments. For cash-strapped countries, like North Macedonia, the opportunity to make real progress in this field may come from ‘green’ funds the EU has earmarked for energy projects in both current member states and candidate countries . In addition, Greece has established an LNG terminal on the Aegean to which links the RNM is planning to adjoin its grid. There are also talks of an electric-grid link to Albania, through which the RNM could import as much as needed and even export eventual surpluses.

Forecast: The RNM can make it… with some help

Without radical reform, the extant corruption, bureaucracy and public-sector inefficiency will stymy growth in the coming years. Luckily, the EU might be the answer to Skopje’s economic woes. The Union is expected to grant €3.3 billion to Western-Balkan countries to kickstart economic recovery following the pandemic. The package does however come with strings attached: the country will have to accelerate progress towards regulatory harmonisation with the EU. This is a notoriously difficult and resource-consuming task, which may hinder other reforms.

Furthermore, North Macedonia must confront pre-pandemic economic struggles. The government could revert to coalition infightings and therefore prolong the process of economic reform. For investors, a cautious approach is recommended, in preparation for positive economic developments.

Acknowledgments The Author thanks Charlotte Millington, parliamentary researcher at the UK House of Commons specialising in European politics and international security for her suggestions.

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How to incorporate the environment in economic ventures for a sustainable future?

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We are in the phase of world history where economic development and protection of environment must go side by side. People living in the developed part of the world will hardly want to give up their current lifestyle and people living in the developing part want to be more like the developed but in this process, we cannot separate environment from economy. Environment provides the incentive for economic growth and prosperity; providing the raw materials and resources we need for production of goods, certain climates and temperatures are required for the growth of specific plants and are very crucial to agriculture industry and the environment is what absorbs the pollution and waste we produce from all this industrialization. Protection of the environment means we mark ourselves safe from economic degradation and provide safe space for healthy functioning of economic and social activities. If we preserve the environment we control the risks of drought, heat waves, cold spells and floods, regulate the air quality, the temperature, the climate, the clean supply of water, the contamination of soil, cycling of nutrients in the ecosystem and management of carbon. Since agriculture can be regarded as the primary industry, crucial to feed people, people who then operate other industries, it is very important to safeguard the environment that feeds us and nurtures us and the environment that we live and grow in. Today, the world economy is facing serious environmental hazards. Climate change, loss of biodiversity and ecosystems are some of the global problems that need immediate collective action by states since this issue engulfs the whole of mankind. Therefore, economists and environmentalists have in the recent years taken this subject with full zest. How can economic growth and environmental protection go hand in hand? Environmental policies integrated with economic policies can be implemented and pursued by states to ensure sustained and prolonged environmental human well-being and continued simultaneous economic growth for states both at the national and international level, ending in a win-win situation.

Natural resources are salient to economic development but at present many prime resources and ecosystems are depleting which poses a grave situation for states and their economies. To tackle this concern, natural resources need to be used in a reasonable manner and adopting and improving technology be propagated in such a way that the use of natural resources is made more efficient and long lasting. Use of newer and modern product designing which meets the needs of the current times, needs to inculcated. The consumption of natural resources beyond the point that hampers economic growth also needs to be avoided. The vitality of technology and innovation in limiting environmental hazards is being stressed, this is also beneficial for businesses and industrialization. This is because preservation of environment is itself a form of economic development and growth. People who come up with the ideas and engineering for environmental friendly products; such as the water and air pollution control, treatment and purification technologies, make money and businesses out of these services, thus contributing to the economy. Similarly, wind mills and solar systems are now a multimillion-dollar business themselves. If environment protection is putting some older technologies and practices out of work, it is also creating incentives for modern technologies and creating more job opportunities in the field. States should thus, make an industrial shift to equipment and products that have a low carbon usage and efficiently use resources. In the real estate sector, places with better and healthier environment and surroundings are priced more than other counterparts for example, a building next to a park or green belt will have higher value than a property which is not next to any place green. This points to the concept of “hedonic pricing.” It refers to the difference in pricing due to the associated environmental aspects, in otherwise similar products. Better environment also contributes to the development of human capital. The presence of a green park will not only add to beauty and better air quality but it will also encourage a lot of people to physically exercise.

Due to the growing scarcity of resources, governments of the world should introduce the policy of “common property regime,” which avers that resources such as land, water, certain habitats and the atmosphere be made common property for all. The problem is that there are no property laws for these resources and people use it as a free dump for human waste and waste products from economic activities. This includes various water bodies for example, irrigation systems and canals, forests, fishing areas etc. Concise and clearly enforced rules should be put in place, exercising the limits put on some activities such as excessive fishing or cutting of forests, putting a limit on the accessibility to these resources, keeping a check on the carbon footprint of some groups, organizations or events or even putting some specifications on their use such as tax or making recycling or reuse mandatory. The shift from already existing practices to newer ones that are more environment-friendly will be costly and it will take time but it is more important now than ever and more beneficial for us in the long run. Environment policies of these sorts reframe the economic structure. The cost of using these resources should be closed in according to the social cost of putting the health of the public at risk. Restructuring of the economic and environmental structure helps a country’s economy by lessening the environmental hazards that the country might face and by making the state more buoyant and resilient in the face of these environmental changes and risks. This can also prove to be a powerful driving force for innovations and ideas.

States are often in the race to increase their GDP. GDP only measures the material values of goods and services and does not take into account the well-being of humans including the health and education quality, living standards, income and environmental conditions. Economic growth, nonetheless, is a prime force for improving human well-being and states incorporate social, political and environmental goals in the well-being domain through these economic activities. The Kuznets curve is a graph to explain the relationship between the growth in economy/GDP and the quality of environment. States can keep this model in mind while reformulating their economic and environmental policies, in accordance to the history of environmental degradation they have endured and the future remodelling they need to follow. It is characterized by an inverted U-shaped relation between GDP per capita and environmental quality. Since we have already crossed the point for environmental degradation, it is now time to think for the decline in the degradation. Initially, when the GDP grows, so does the degradation of environment but after a certain point, the increase in GDP no longer degrades the environment further. This is because at lower income levels, the income is completely spent on meeting the basic survival requirements. When the income increases to a certain point, people and states should start thinking of the bargain that material does with the environment, this should be reflected in their behavioural change. After this point, states should start giving up further unnecessary consumption and focus more on environmental rehabilitation. Another possibility seen through this graph is that industries might see profit in enhancing production quickly, but as demands are met and resources become scarcer, more green, cleaner and resource efficient technology is introduced. Societies, in this way, also go from agriculture-based economy to manufacturing-based economy and finally to service-based economies, releasing the lowest levels of pollution. An example can be of EU rules and regulations. Waste water used to get dumped directly into the streams or rivers, but now it gets treated first before releasing. There are barely any housings left in the EU now that are not connected to solid and water waste disposal and treatment networks.

If states and the firms operating in those states take up eco-innovations and eco-friendly measures, they will actually be at advantage because investors like banks and various funding institutes are more likely to invest in sustainable businesses that will stay operational a long time, than those that are dependent on the environment in these challenging times. Firms that run on eco-friendly terms will also stay ahead of the taxes and regulations charged on using environmental resources. This will prove to be very cost efficient for them and they will not have to change their action plans according to any new regulations or increases in costs. Greener and cleaner practices and equipment can also truly reduce the waste an industry produces, in turn increasing the output and ensuring sustainability. This adaptation to cleaner practices can also lead to innovations and new ideas and practices starting right from the household or individual level. UK is one of the countries that is high on the ranks of eco-innovations, thanks to general understanding and cooperation among firms to pursue sustainable development. Furthermore, statistics show that companies that are currently focusing more eco-innovations are growing at the rate of 15% annually while their counterparts that are not focusing on the same, are not enjoying any climb in their profits[1]. Most of these businesses (based in Europe) are small to medium scaled and they are adaptable in nature. They are benefitting from the European commission’s stance on promoting eco-friendly businesses. Public Relations advantages and marketing superiority is also pretty clear in eco-innovation ventures.

A commendable example of improving the environmental conditions while also not compromising on the GDP and economic development, is that of China. China has been time and again accused of having a huge carbon footprint, which directly impacts the ozone layer which is communal to all mankind. States that are not even at par with the fumes and industrial waste that China produces, are today in the list of states most affected by climate change and global warming, including Pakistan and many of the Gulf nations. China has thus taken the role of global leadership in the field of environmental protection. China has been standing true to its 2015 Paris agreements on cutting down of greenhouse emissions. It was able to do so by spreading awareness and education from the grass-root level. In the period of only a few years, China has drastically improved the air quality in many of its larger cities. Solid waste management and sorting is a major step taken to restrict illegal dumping of garbage. Restrictive policies and heavy fines are imposed if an individual breaks the rules. Renewable energy generators like the wind and solar panels, have been put to use to meet nationwide energy requirements, which ensures cost effective power. In the year 2017, China nationally introduced the concept of “National emissions trading system,” which formed a market for the buying and selling of carbon dioxide emissions allowances. It regulates the quantity of emissions and carbon footprints that an individual, firm or an event is allowed to produce. All of this simultaneously helps China to become more energy sufficient and assists economic reforms while also improving the quality of ground-level air. Some states in the USA are taking up the initiative of green or clean economy with full fervour. California for example, set a target to achieve carbon neutrality by the year 2045, while the clean energy sector is also opening opportunities for jobs. One of the incentive taken in the goal was stricter vehicle exhaust emission rules[2].Nevada also passed a legislation to increase the energy it makes to up to 50% through renewable energy sources, by the year 2030[3]. Rules and regulations have also bene proposed to reduce the emission of harmful air pollutants including those that are short-lived such as methane, CFCs and HFCs. Developing countries like Pakistan have also addressed the climate issue and the Pakistan Premier launched the “Billion Tree Tsunami” plantation campaign to curb deforestation, an issue rampant in the north of the country. In conclusion of this paper, in light of all the examples and recommendations, I would say that the long term benefits, mutual to all, outweigh the costs of taking a leap from existing economic practices to those that are eco-friendlier.


[1]“Eco-innovation for better business,” Business Green, accessed October 23, 2020, https://www.businessgreen.com/sponsored/2409410/eco-innovation-for-better-business

[2] “California Air Quality: Mapping the progress,” U.S News. November 6, 2019.https://www.usnews.com/news/healthiest-communities/articles/2019-11-06/california-air-quality-mapping-the-progress

[3]Chandler Green. “7 ways US states are leading climate action,” United Nations Foundation. May 30, 2019, https://unfoundation.org/blog/post/7-ways-u-s-states-are-leading-climate-action/

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