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President Trump’s economic war against Germany and the euro

Giancarlo Elia Valori

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[yt_dropcap type=”square” font=”” size=”14″ color=”#000″ background=”#fff” ] J [/yt_dropcap]ust a week after his official installation at the White House, Donald J. Trump lashed out at China, accused of manipulating its currency to “win the globalization game”, but also at Germany which, as the President of the new National Trade Council, Peter Navarro, said “is exploiting both its neighbours and the United States with the euro”.

The accusation is not new. In the early 1970s the United States accused the old European Monetary System (EMS) of keeping the currencies adhering to it artificially high.

Inter alia, the EMS – with fixed exchange rates but with predefined fluctuations within it – was the European response to the US-prompted end of the 1944 Bretton Woods agreement.

Nevertheless, it was also Europe’s reaction to the planned weakness of the dollar during Jimmy Carter’s Presidency, when precisely the dollar area sent huge capital flows into Germany, which had a “high” Mark, thus pressing it against the French Franc and hence destabilizing the entire European internal monetary exchange system.

Furthermore, in the early 1980s, the British Labour Prime Minister, Denis Healey, got convinced that the EMS was a real German “racket”, considering that the German Finance Minister had told him that his country planned to have a comparative advantage precisely by limiting the depreciation of the other European currencies.

This happened because Germany had lower labour cost-driven inflation rates and, hence, a currency with fixed rates would have anyway ensured export-driven surpluses only to Germany.

However also the G20 long negotiations have never led to any result: currently, in absolute terms, the German export-led surplus is much larger than China’s, namely 8.6% of the German GDP.

In fact, according to IMF estimates, the surplus is equal to 271 billion US dollars, a huge sum capable of changing all global trade flows.

Finally Chancellor Angela Merkel replied to Trump (and to Navarro) by recalling that the European Central Bank is the institution issuing the euro, but it is not lender of last resort. Nevertheless, she has not contradicted the US President about the fact that the Euro is really undervalued.

Furthermore, when we look at the currencies undervalued as against the US Dollar, we realize that the most undervalued currency is the Turkish Lira, followed by the Mexican Peso, the Polish Zloty, the Hungarian Forint, the South Korean Won and, finally, our own Euro.

Finally, when we look at the number and size of transactions denominated in euros, the European currency is already the second most traded currency in the world.

Hence, probably the undervaluation of the Euro against the US Dollar originates more from the expansionist policy of the European central Bank than from Germany’s actions for its exports and monetary parities.

Certainly Germany gains in having a currency that is much weaker than it would be if it were only a German currency but, on the other hand, with a Euro artfully devalued, the “weakest” Eurozone countries succeed in having lower interest rates than they could obtain with their old or new national currencies.

Moreover, it is worth recalling that Germany exports profitably both in countries where the currency is stronger than the Euro and in regions where the currency is even more depreciated as against the US Dollar, such as Japan.

According to last year’s data, the United States have a trade deficit with Germany equal to 60 billion US dollars.

Germany exports mainly cars, which account for 22% of their total exports to the United States.

It also exports – in decreasing order – machine tools, in direct competition with Italy, electronics, pharmaceuticals, medical technologies, plastics, aircraft and avionics, oil, iron and steel, as well as organic chemicals. All German exports are worth 35% of its GDP.

Why, however, is the Euro depreciated because of Germany?

Firstly, since 2000 the German cost of labour has grown by 20-30% less than in the Eurozone’s German competitors.

Hence German products were ipso facto 20% more competitive than those of the others, without any exchange rate manipulation.

If Germany still had had the Mark, it would have automatically appreciated by 20%.

The appreciation of this hypothetical Mark would have changed demand, by reducing exports and increasing imports by the same percentage.

In that case, the ideal would have been a floating exchange rate – and this should also be the case for a re-modulated Euro compared to the current situation.

A fluctuation prefiguring the creation of a new monetary “basket” with the major currencies, with exchange rates floating within a certain range, but much more realistic than the current ones.

A further cause of the current account surplus in Germany is the intrinsic strength of its exports – hence Germany does not suffer the competition of low-tech economies, such as Italy’s.

Another reason for the excessive German surplus is the low domestic demand, with the relative increase in private savings.

An additional cause of the surplus is the fact that savings have long been higher than investment.

In 2015, German savings amounted to 25% of the Gross Domestic Product (GDP), while investment was worth only 16% of the GDP.

Obviously, another decisive reason for the accumulation of such a large German surplus was the fall in oil prices.

Therefore, the vast German surplus and the Euro undervaluation foster its exports, but block the exports of the other Eurozone countries.

In fact, according to our calculations, if Germany stimulated its domestic demand, thus allowing its inflation to increase, this would be enough for the final stimulus of global demand and, above all, it would make the Eurozone economies under crisis get out of their predicament.

Hence the real problem of too high a Euro is not so much for the United States, which can devalue as against the Euro whenever they want and anyway have still their own autonomous monetary policy, but rather for the single currency countries in the Mediterranean, which are experiencing a downturn caused by too low domestic demand.

Could we also do as Germany? No, we could not.

It is not possible for anyone in the Eurozone to create an 8% surplus, such as Germany, and not all countries could benefit from a devalued exchange rate of the European currency.

As many politicians say, restructuring the production system to increase productivity means – in a nutshell – years of deflation and high unemployment, which create a negative multiplier effect.

We cannot afford so – the social and economic conditions have already reached the breaking point.

Hence, let us put our minds at rest, the ”two-speed Europe” will last generations and it would be better if this could also be reflected in the single currency.

Or better in a series of two-three currencies deriving from the Euro with pre-fixed exchange rates floating within a range.

Furthermore, Germany will certainly replace China as the “bad” currency manipulator and there will be increasing competition between it and the rest of Europe.

Therefore, the German export surplus actually leads to an unfair competitive advantage over the Eurozone countries and, in other respects, over the North American exports.

This is the sense of the struggle against the Euro waged by President Trump and his future Ambassador to the EU, Ted Malloch, who has stated that the Euro may “collapse” over the next eighteen months.

The Euro is certainly undervalued.

According to a study carried out by Deutsche Bank, the Euro is allegedly the most undervalued currency in the world, according to the criteria of the Fundamental Equilibrium Exchange Rates (FEER).

And the Euro is undervalued even if we look at its external value and the mass of transactions of the individual countries currently adopting it.

Hence, not only can Germany be accused of managing an improper comparative advantage over the dollar and the other major currencies but, according to the FEER data, the accusation holds true even for Italy and for the other single currency European countries.

With a view to solving the issue, some analysts – especially North Americans – think it should be Germany to leave the Euro.

On the one hand, Germany cannot revalue its currency (which is also a political problem – suffice to think of German savers) without the Euro appreciating also for the Eurozone weak economies, such Italy and Spain.

The World Bank believes that the German trade surplus is at least 5% too high and, hence, the German exchange rate is largely undervalued by at least 15%.

In fact, the differential between the German Euro and the Euro of the Eurozone weakest countries is 20%.

This means that, in terms of Purchasing Power Parity (PPP), the Italian or Greek Euro is worth 20% less than the German one.

The issue could be solved with an equivalent 20% Euro revaluation, combined with an expansionary fiscal policy.

However, this cannot be done as long as Germany is within the Euro. This means that Germany cannot revalue the exchange rate without doing the same in the other 17 countries that adopt the European single currency.

This would mean definitively destroying the Italian, Greek, Portuguese and Spanish economies.

Therefore, if Germany came out of the Euro, its new currency would appreciate as against the non-German Euro and the other countries would have a devalued currency, which could help them in exports.

There are two ways in which the German trade surplus creates deflation – and hence crisis – in the rest of the Eurozone.

Obviously the first is by pushing up the value of the European currency.

A strong euro weakens the demand for European exports, especially for the most price-sensitive goods of the Eurozone Mediterranean economies.

Moreover, the high value of the European currency reduces the price of imported goods, thus negatively reinforcing the price fall – another deflationary mechanism.

And the German inflation which, as everyone knows, is lower than in the other Eurozone countries, further weakens the peripheral economies.

Hence a landscape marked by low domestic demand and national markets’ production crisis.

However, in Navarro’s and in Trump’s minds, there is the implicit belief that trade imbalances can be solved in a context of free-floating currencies.

It is not always so and, however, fluctuations apply only when there are structural changes in trade systems – in principle all players envisage and operate, for sufficient time, with fixed or maybe slightly floating rates.

Therefore, reading between the lines, what both Trump and Navarro really tell us is that the very Euro membership is an act of monetary manipulation.

Hence, what is done?

The unity of the European economy is broken, with unpredictable effects and further global chaos, while the United States acquire exports that were previously denominated in euros.

Or the United States could impose quotas or specific tariffs for Germany, which is illegal in WTO terms but, above all, would expose the United States to a series of reprisals and retaliation by Germany and probably also by the rest of the Eurozone.

There is no way out: therefore, again reading between the lines, probably Trump is telling to the Eurozone weak economies that they should leave the single currency, which is only in Germany’s interest, and create new post-Euro currencies, which will be somehow pegged to the US Dollar.

Or Trump and Navarro could define a new relationship between Euro, Dollar, Yuan, Ruble, Yen and some other primary currencies on the markets and impose a predetermined fluctuation between them, but obviously the Euro would enter this new “Bretton Woods” by being valued in line with the markets and not being overvalued as today.

Europe, however, shall put back in line and tackle all trade and political issues with Trump’s America, which will make no concession to anyone and, most importantly, does no longer want to favour Europe militarily, strategically, financially and commercially.

In particular, Donald J. Trump has in mind the big game with Russia and China. He is scarcely interested in a continent, such as Europe, which is not capable of defending itself on its own and shows severe signs of structural crisis.

Advisory Board Co-chair Honoris Causa Professor Giancarlo Elia Valori is an eminent Italian economist and businessman. He holds prestigious academic distinctions and national orders. Mr. Valori has lectured on international affairs and economics at the world’s leading universities such as Peking University, the Hebrew University of Jerusalem and the Yeshiva University in New York. He currently chairs “International World Group”, he is also the honorary president of Huawei Italy, economic adviser to the Chinese giant HNA Group. In 1992 he was appointed Officier de la Légion d’Honneur de la République Francaise, with this motivation: “A man who can see across borders to understand the world” and in 2002 he received the title “Honorable” of the Académie des Sciences de l’Institut de France. “

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Why Infrastructure Doesn’t Have to Cost the Earth

Susantono Bambang

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Here’s a statistic: 75 percent of the infrastructure that will be required globally in 2050 has yet to be built. That sounds daunting, but the truth is more encouraging because it presents us with a critical opportunity.

Asia and the Pacific has seen outstanding development and growth over recent decades, but that has come at a cost. Scientists say that some 1 million animal and plant species may become extinct, many within decades. We have also lost nearly half of our coral reefs and mangroves.  

Rapid urbanization, along with agriculture and infrastructure expansion, have severely degraded our land, soil, freshwater, and oceans. This compromises our vital ecosystems, which has significant consequences for the livelihoods and food security of local communities and the stability of our climate. 

And yet, for Asia and the Pacific, where almost 1 billion people still live in poverty, the demand for development—and the economic potential that goes with it—remains. And so we have an opportunity: an opportunity to not only develop investment and infrastructure that lowers poverty and improves living standards, but in a way that also protects, sustains, and regenerates our environment. 

Getting this balance right is now at the heart of what the Asian Development Bank is doing. In 2018, we launched Strategy 2030, a blueprint for eradicating extreme poverty that will, among other things, ensure that eco-sensitive project planning and design is a part of our sustainable infrastructure development. 

ADB has three key principles for ensuring we do so. 

Firstly, to strategically work with nature, infrastructure policies and plans must fully consider any impact on the environment at the early stages of development. This requires incorporating the value of natural ecosystems, as well as the social and environmental costs of losing them, into the planning process. 

ADB is piloting this approach in the planning of New Clark City in the Philippines—a new eco-friendly urban center that will one day accommodate more than 1 million people—and through multisector planning for Pakistan’s Ravi River basin, which is suffering from heavy pollution from urban, industrial, and agricultural waste. This approach involves assessing biodiversity and ecosystem services at an early stage in planning, so that we can integrate the protection and restoration of natural habitats it into the design. This creates a safe space for nature.  

Secondly, ADB is using nature-based solutions to improve climate and disaster resilience. These can be applied to a wide range of infrastructure types and sectors, such as water, urban, transportation, and agriculture. 

For example, nature-based solutions can be applied toward flood-risk management. This includes investing in “green” measures such as watershed protection, bio-retention ponds, improved land use planning, and better building regulations. These measures can be applied in combination with traditional “gray” engineering solutions, such as through the construction of stormwater drainage systems. 

For instance, ADB is supporting a project in Jiangxi province in the People’s Republic of China, which uses what has been referred to as a “sponge city approach” for integrated flood risk management and wastewater treatment. The project integrates the use of forests, wetlands, and river rehabilitation to increase water infiltration and manage the flow of storm water through the city. Acting like a sponge, these measures can soak up excess water, reducing flood risks and minimizing a city’s impact on the water cycle. 

Lastly, to safeguard nature, we must incorporate biodiversity conservation and restoration into the detailed design of infrastructure projects. This is critical given that 25 million kilometers of roads are expected to be built worldwide by 2050—enough to circle the planet 625 times. Ninety percent of the investment is expected to be in developing countries, with an estimated $7.8 trillion in transport infrastructure needed in Asia and the Pacific between 2016 and 2030. These investments could have severe ecological impacts if not planned well, due to the loss and fragmentation of natural habitats, as well as increased access and poaching of endangered species such as tigers and orangutans. 

We can avoid and minimize these types of impacts in several ways, such as by ensuring that landscape-wide biodiversity studies are married with infrastructure planning, and by incorporating wildlife corridors into project design to provide safe passage for animals. 

For example, in the southern region of Bhutan, ADB designed four wildlife underpasses so that migration routes for elephants would not be affected. These allow wildlife to move safely under the road to reduce collision risks and ensure that access to different habitats can be maintained. Such measures take careful planning and design—with engineers and ecologists working together—and a commitment to long-term management and monitoring to ensure that they work effectively. 

The infrastructure needs of the Asia-Pacific region are immense. But with this approach, ADB and others in the development and investment community can ensure that progress doesn’t cost the earth. 

ADB

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The Social-Strategic Revolution: Success for the Reluctant New Executive

Karen Bruzzano

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The one stable thing written about in today’s job market more than any other subject is instability. For most people that fact has only been a horribly negative symbol of how difficult it is to build a career and remain happy in one place over a long period of time. The American baby boomer mythology of taking a job straight out of college and gradually climbing the corporate ladder from within the organization, ultimately retiring with a healthy pension and decades’ worth of positive memories and experiences in one place is now largely just that: MYTH.  If it was ever truly an accurate description of the American job market, or indeed the global arena, it certainly cannot describe the reality facing ambitious and aspiring young executives today. Most statistical surveys currently have people changing jobs every 4.6 years. Thus, the future is not about how to succeed simply as an executive. It is about knowing how to become a successful “new executive” in an unstable and ever-changing corporate world.

While most look at the above statistic with part fascination and part horror, a new executive has to focus on the silver lining buried deep within that perceived black cloud. People that look to move up the corporate ladder and satisfy their ambitions are more often than not voluntarily moving to other corporations because in today’s world that ladder is best climbed from the outside rather than from within, from jumping in great leaps to other corporations rather than baby-stepping up a fading ladder within a single organization. When we add the fact that today’s world is also marked much more by the merging and acquisition of companies, then the stock-raising downsizing of workforces make deft executive maneuverability a crucial new skill set.

The new executive has to stop lamenting this reality (because it isn’t changing) and learn to embrace these cross-pollinations and fusions of industries by capitalizing on the opportunity that exists with their new skill sets and new ways of thinking. M+As are never perfectly smooth, never easily efficient in their transitions. The people who will succeed best are the ones who make their skill sets as transferrable, flexible, and adaptable as possible. After all, acquiring depth of knowledge of a new industry is far easier to achieve if you have the skill sets that do not live in dread fear of change and the disruption of routine. This is the new executive way of thinking. Success is no longer gained by just looking at the length of time a person has spent within a particular industry and thinking they have ‘earned’ promotion and power based on seniority and time served. At least, success is not determined this way in the best industries in the modern day.

Some may lament this as the death of mutual loyalty. In some ways, it may be just that. But one of the fundamental axioms of organizational life, and something the new executive must embrace, is that individuals do not harm companies or institutions. Sacrificing your own career trajectory or life goal timeline out of an antiquated sense of remaining true to a company is not just naïve. It is unnecessary. As humbling as it may be, any person can be replaced and an organization will move on without you. Take this not as a slap against your ego or an insult to your skills. Value it as the essential explanation as to why you make your career decisions based on you and you alone and what is best for your career. In the end, the only one guaranteed to serve your best interests is the one in the mirror. Indeed, that is also how you best serve a company: find the best fit for both you as an individual and the company as a corporate entity and add new value by bringing your experience and passion to the forefront.

Keep in mind that how the global economy has changed over time to create this fundamental switch in executive mentality and strategy is beyond “correction.” The change is permanent. What matters is not to be disheartened by it but understand how to navigate these choppy corporate waters so that when you make one of those inevitable 4.6-year jumps you land successfully, effectively, and smoothly. This is the ultimate mission of the new executive in the 21st century. It is not trying to avoid the unavoidable organizational leaps, but figuring out what to expect and how to succeed after the leap is taken. Unfortunately, this latter process of overcoming these dangers, challenges, and obstacles is horribly under-addressed today. This is the knowledge gap needing to be addressed to better engineer future new executive success.

Changing jobs to pursue advancement is almost blasé in the modern corporate environment. Perhaps that is why there is so little information helping people navigate their executive careers post leap -. Instead, most of the literature focuses on what to do pre-leap. And let’s make one thing perfectly clear before the inevitable counter-discussion begins: this is not just a ‘millennial’ problem. Job-hopping may indeed be the new normal for young professionals just getting into the job market. But when done properly it is arguably the most effective strategy for elevating up the corporate chain for any generation. Navigating the difficult corporate paths of the new executive, therefore, is just as relevant, if not more, for people aged 40-55. It is not just about those aged 25-40.

First and foremost, the new executive reaches for opportunity in cross-pollination career advancement by being an agent of change. After all, if a company had a problem it could solve in-house then it would have done so already. Thus, the entrance of a new executive into the leadership team is not just about new energy or new blood but most importantly it is about new thinking. It is an admission from the very beginning, before you even get there and put pictures on your desk, that there is something that needs fixing and you are meant to be a crucial part if not the significant piece to engineer those solutions.

This should be exciting for anyone with ambition. It can also be very scary. Most new executives enter their first day and quickly discover that the hornet’s nest of problems hidden during their interviews is no longer hidden. People who felt the job should have been theirs. People moved from one division to another (not always voluntary) to make room for your arrival. People wondering why change is even necessary and if this is a judgment against them. People who will undermine new ideas (without even understanding how those ideas might improve things) just because their established routines are sacrosanct and they fear being pushed out of their comfort zones. If anything is true about a new executive, one thing is LAW: routines will be altered. This will always be both a wonderful opportunity and a hellacious problem-creator. Just remember that this is very fertile ground to prove yourself and lead your team to success. Creating solutions and new opportunities for those who have the drive, skills, and passion to succeed is the raison d’etre for the new executive.

This axiom of opportunity also lies at the heart of most of the turmoil new executives face when entering a new corporate scene. Disruption of routine is akin to starting an unwanted revolution for most. Every new executive needs to be aware of how that is seen by the members of his/her new team. YOU know what you intend to do. YOU are certain you will be bringing much needed success, innovation, and efficiency. YOU have no doubts that the company and employees alike can benefit from these changes. But those statements can contain one small detail that is fatally flawed if the new executive is not careful. It presumes that everyone in the office can easily connect to your vision and then will wish to match the energy, vision, and ambition you are bringing to the table. Unfortunately, that is usually not the case. Far from it. Thus, the first immediate challenge a new executive must overcome is making those important connections so that your new team’s desire matches you step-for-step and it can see what you see. This is a key part of the initial success strategy a new executive must introduce. Your revolution must be a social-strategic one. Failure at this first stage ultimately means your revolution never gets off the ground. Which, sadly, means your executive career won’t either.

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How to stabilize Pakistan’s economy?

Amjed Jaaved

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Pakistan approached International Monetary Fund for 13th time since 1988 to get a bail-out. This programme is touted as a recipe to `reduce Pakistan’s public debt’ and `stabilize the economy’. The suggested panacea is `market-determined exchange-rate’ coupled with tax-evasion. But a free-floating exchange-rate is no magic wand or panacea for economic stability.

Unresponsive exports

Devaluations are unlikely to stimulate Pakistan’s export potential as its industrial production including that of textiles, is now in shambles. They only balloon debt burden. IMF’s own 1996-Economic-issues series booklet `Moving to a Flexible Exchange Rate: How, When, and How Fast?’ cautions against over-optimism. The booklet (by Rupa Duttagupta, Gilda Fernandez, and Cem Karacadag) concludes with advice `Both fixed and floating exchange rates have distinct and different advantages. No single exchange rate regime is appropriate for all countries in all circumstances. Countries will have to weigh the costs and benefits of floating in light of both their economic and their institutional readiness’.

Effect on public debt

When the State Bank of Pakistan devalued rupee in July 2017, then finance minister, Ishaq Dar (now an absconder) claimed the State Bank of Pakistan acted without his volition. The Dar-time devaluation inflated our debt burden by Rs 2,300 crore. Again, under PTI government Rupee happened to be devalued by 3.8 per cent, or Rs5.06, to an all-time low at Rs139.05 to dollar (increasing debt burden by Rs. 3500 crore). The government devolved blame on `SBP for devaluing rupee without informing it. We have low productive capacity and depend on services. The industrial sector’s contribution to the total Gross-Domestic-Product Growth was only nine per cent and its weight in the size of the economy was 20.8 per cent. IMF puts country’s growth rate at 2.5 per cent. After witnessing a four per cent growth rate in the last fiscal year, cotton production declined 17.5%. The production of rice and sugarcane also fell by 3.3 per cent and 19.4 per cent respectively. Even the 65% debt-to-GDP ratio will be higher than the statutory limit of 60% set by parliament in the Fiscal Responsibility and Debt Limitation Act.

Slow growth rate, poor productive capacity and dominant services sector foretell that our rupee will further weaken vis-a-vis dollar.  Even without further devaluation, Pakistan’s external public debt was US$74 billion as of end-February 2019. It would be whopping US$31 billion in the next seven years, July 2019 to June 2026. The country’s economic growth rate has slowed down to 3.3 per cent, the lowest in nine years.  The slow pace of economic growth coupled with currency devaluation reduced size of the economy to around $280 billion from $313 billion at the end of the Pakistan Muslim League-Nawaz (PML-N) government’s term. Almost every sector has made negative contribution to growth rate of 3.29% during fiscal year 2018-19 ending on June 30.

India’s recent budget aims at growth rate of 12 per cent a year (8% growth discounting inflation at 4%). Pakistan’s growth rate would be minus 10 per cent a year (3% growth less 13% inflation). How could this poor growth rate stabilise economy as per text-book burden-of-debt models?

Write off `odious debts’

Pakistan should tell the IMF `we reject forced devaluations (quasi-floating exchange) and shall pay debt in rupee at contracted loan rate of about Rs. 2.5 to a dollar’. That would deflate Pakistan’s debt burden and make IMF bailout successful. Too, the IMF should write off `odious debts’. James K. Boyce and Madakene O’Donnel (eds.), in Peace and the Public Purse (. New Delhi. Viva Books 2008, p, 251) say debt forgiveness (or relief) helps stabilise weak democracies, though corrupt and incompetent.  Debt relief promotes economic growth and foreign investment. In fact, economists have questioned justification of loans given to prop up congenial regimes.  They hold that a nation is not obliged to pay such `odious debts'(a personal liability) showered upon a praetorian (p. 252 ibid.). Legally also, any liability financial or quasi-non-financial, contracted under duress, is null and void. Sachs (1989) inferred that debt service costs discourage domestic and foreign investment.  Kanbur (2000), also, concluded that debt is a drag on private investment.

FDI. Pakistan should improve `ease of doing business’ to attract foreign-direct investment. According to World Bank, Pakistan ranks 136 among 190 economies in the ease of doing business, according to the latest World Bank annual ratings.  State Bank of Pakistan reported on February 18 that foreign direct investment (FDI) during July-Jan FY19 declined by over 17 per cent compared to the same period last year. Pakistan’s prime export sector is stagnant (overtaken by China and Bangladesh).  It suffers from low investment in modern machinery, energy shortages, and inadequate efforts to integrate into global supply and retail networks.

Learning from India

India ranks 77th. As of February 2019, India is working on a road map to achieve its goal of US$ 100 billion worth of FDI inflows. In February 2019, the Government of India released the Draft National e-Commerce Policy which encourages FDI in the marketplace model of e-commerce. According to World Bank, private investments in India is expected to grow by 8.8 per cent in FY 2018-19 to overtake private consumption growth of 7.4 per cent, and thereby drive the growth in India’s gross domestic product (GDP) in FY 2018-19.

Apart from being a, Foreign direct investment (FDI) is a debt-free primum mobile economic growth. Foreign companies invest in India to take advantage of relatively lower wages, special investment privileges, such as tax exemptions, etc. share technical know-how and generate jobs.

India relaxed FDI norms across sectors such as defence, public-sector undertakings, oil refineries, telecom, power exchanges, and stock exchanges.

Equity inflows in India in 2018-19 stood at US$ 44.37 billion. During 2018-19, the services sector attracted the highest FDI equity inflow of US$ 9.16 billion, followed by computer software and hardware – US$ 6.42 billion, trading – US$ 4.46 billion and telecommunications – US$ 2.67 billion. Most recently, the total FDI equity inflows for the month of March 2019 touched US$ 3.60 billion. During 2018-19, India received the maximum FDI equity inflows from Singapore (US$ 16.23 billion), followed by Mauritius (US$ 8.08 billion), Netherlands (US$ 3.87 billion), USA (US$ 3.14 billion), and Japan (US$ 2.97 billion). India is the top recipient of Greenfield FDI Inflows from the Commonwealth, as per a trade review released by The Commonwealth in 2018. In October 2018, VMware, a leading software innovating enterprise of US has announced investment of US$ 2 billion in India between by 2023. In August 2018, Bharti Airtel received approval of the Government of India for sale of 20 per cent stake in its DTH arm to an America based private equity firm, Warburg Pincus, for around $350 million. In June 2018, Idea’s appeal for 100 per cent FDI was approved by Department of Telecommunication (DoT) followed by its Indian merger with Vodafone making Vodafone Idea the largest telecom operator in India In May 2018, Walmart acquired a 77 per cent stake in Flipkart for a consideration of US$ 16 billion. .In February 2018, Ikea announced its plans to invest up to Rs 4,000 crore (US$ 612 million) in the state of Maharashtra to set up multi-format stores and experience centres.

Kathmandu based conglomerate, CG Group is looking to invest Rs 1,000 crore (US$ 155.97 million) in India by 2020 in its food and beverage business, stated Mr. Varun Choudhary, Executive Director, CG Corp Global.

International Finance Corporation (IFC), the investment arm of the World Bank Group, is planning to invest about US$ 6 billion through 2022 in several sustainable and renewable energy programmes in India. As of February 2019, the Government of India is working on a road map to achieve its goal of US$ 100 billion worth of FDI inflows.

In February 2019, the Government of India released the Draft National e-Commerce Policy which encourages FDI in the marketplace model of e-commerce. India is planning to allow 100 per cent FDI in Insurance intermediaries in India to give a boost to the sector and attracting more funds. Revised FDI rules allow100 per cent FDI in the marketplace based model of e-commerce. Also, sales of any vendor through an e-commerce marketplace entity or its group companies have been limited to 25 per cent of the total sales of such vendor.

In September 2018, the Government of India released the National Digital Communications Policy, 2018 which envisages increasing FDI inflows in the telecommunications sector to US$ 100 billion by 2022.

In January 2018, Government of India allowed foreign airlines to invest in Air India up to 49 per cent with government approval. The investment cannot exceed 49 per cent directly or indirectly.

No government approval will be required for FDI up to an extent of 100 per cent in Real Estate Broking Services.

In September 2017, the Government of India asked the states to focus on strengthening single window clearance system for fast-tracking approval processes, in order to increase Japanese investments in India.The Ministry of Commerce and Industry, Government of India has eased the approval mechanism for foreign direct investment (FDI) proposals by doing away with the approval of Department of Revenue and mandating clearance of all proposals requiring approval within 10 weeks after the receipt of application.

The Government of India is in talks with stakeholders to further ease foreign direct investment (FDI) in defence under the automatic route to 51 per cent from the current 49 per cent, in order to give a boost to the Make in India initiative and to generate employment.

In January 2018, Government of India allowed 100 per cent FDI in single brand retail through automatic route.

Tax on the rich

Pakistan needs to learn from India’s recent budget about innovative measures to tax the rich. With so many billionaire politicians and tycoons, it is an un-reaped bonanza.  In India’s recent budget, surcharge on individuals earning more than Rs 5 crore a year was raised up to 42.7%, even higher than US super-rich tax of 40% tax. India even contemplated imposing inheritance tax.

Pakistan’s tax structure could be reformed in light of insights in IMF’s Tax Law Design and Drafting (volume 1; International Monetary Fund: Victor Thuronyi, ed.1996.Chapter 10, Taxation of Wealth). Pakistan taxes `income-‘tax capacity, not accumulated-capital to tax inheritance and estate.

Magnetised/Chip cards 

Pakistan needs to adopt card based transactions to get rid of money-laundering and hawala (hand to hand) csh dealings.

Inheritance tax. India’s Budget 2019enhanced taxes on the super-rich bracket. However, an inheritance tax also is on the anvil. This tax suits Pakistan the most. India did away with English zamindari system (British gifts of estates) in 1948. But, Pakistan is barred from putting upper limit on private property and undertaking land reforms because of Shariat Appellate Bench of the Supreme Court decision dated August 10, 1989.  The verdict was delivered nine years after it was first filed by the Qazalbash Waqf, a religious charity based nearby Lahore. It was a 3-2 split decision and was made effective from March 23, 1990.

Inheritance tax is a tax that you pay when you receive money or property from the estate of a deceased person.  Unlike the estate tax, the beneficiary of the property is responsible for 

paying the tax, not the estate. The key difference between estate tax and inheritance tax lies in who is responsible for paying it. An estate tax is levied on the total value of a deceased person’s money and property and is paid out of the decedent’s assets before any distribution to beneficiaries. Once the executor of the estate has divided up the assets and distributed them to the beneficiaries, the inheritance tax comes into play. The tax amount is calculated separately for each individual beneficiary, and the beneficiary must pay the tax.

Basic needs

Unsupported by health-care units, the health cards in Pakistan are another hoax. Merging civil and military outfits, the government should evolve a universal health-care, education and housing system.  To begin with defence-paid military and civilians should be equally entitled at military health facilities.

India has a vision of US$5 trillion economy, with $100 million FDI to provide basic needs to its people_ tapped water supply, closeted toilet, bank account to receive aid, enhanced scholarships, creating world’s best universities, health cover, shelters and ,minimum taxes on self-built houses. Regrettably, focused on bail-outs, Pak planners have no Weltanschanschauung (world view), though it cost nothing. 

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