Global financial crisis is for the benefit of India and China
Article summary:
· The current crisis is not global and only concerns the developed
countries.
· The developing countries are exporting interest free capital to the
developed countries in the form of foreign exchange reserves. Now this trend
would stop.
· The crisis came into being as the US companies could not face
competition posed by China and India.
· The days of the US supremacy are over.
· India and China would become the leading countries of the world.
India seems to be in the grip of the global financial crisis. On October 24,
2008, the Bombay Stock Exchange SENSEX fell by 1071 points to close at 8701
points. In January 2008 it had crossed 21000 points. From 21000 to below 9000
is a sharp decline by any standard. The investors have lost their precious
money.
The crisis affecting the Indian economy is imported from outside and is a
part of the crisis currently going on in many parts of the world, mainly the
United States of America and Europe..Many predict that the crisis would further
aggravate.
Mr Robert B Zoellick, the World Bank president, says that the whole world
would have to cooperate to face the crisis. which he termed as ‘global’. But
there are many who dispute this thinking and claim that the crisis is not a
global one, mainly concerns the developed countries and is, in fact, a boon for
the developing countries. Dr Bharat Jhunjhunwala is one such Indian economist.
Mr Zoellick says that if the global financial crisis deepens, the developing
countries also may suffer and would not be able to get foreign investment. But
the Global Development Finance Report published by the World Bank says that the
funds allocated by the developing countries for creating their foreign exchange
reserves is more than what they are receiving as foreign investment. Which
means that the developing countries are exporting wealth. Therefore, as a
result of the current crisis there may be some decline in the amount of foreign
investment which the developing countries are receiving as foreign investment
but at the same time their allocations for creating foreign exchange also may
come down.
China has got a huge foreign exchange reserves of about US$ 1.9 trillion
which in simple language means that it has provided this amount to the United
States of America as an interest free loan. Many people think that a part of
these massive reserves may turn towards the developing countries.
The World Bank president says that the high oil prices may be bad for the
developing countries. But the fact is that the high oil prices are proving to
be a boon for the oil producing developing countries as they are receiving
astronomical sums of money from oil sales.
The World Bank says that the global financial crisis would affect exports
from the developing countries. This may be true for the present. But the
situation may soon change for the better. Because of increase in income of the
oil producing developing countries, their imports would witness a rise and
these imports would come from other developing countries. Therefore, the total
amount of exports from the developing countries may not necessarily decrease.
Dr Jhunjhunwala says that the claim by Mr Zoellick is an effort to defend the
US interests. It is true that the global financial structure will not remain
the same. The allocation of capital by the developing countries for creating
foreign exchange reserves would decrease and thus the flight of capital from
these countries would be arrested. The income of oil and food exporting
countries would go up. In this way the present financial crisis is a real
danger for the developed countries but may be a boon for the developing
countries.
But what Mr Zoellick says is partially true as those sectors of the
developing countries’ economy which are deeply tied to the economies of the
developed countries would be affected. The share market is one such sphere. For
the same reason we witnessed crash of share prices in the Indian bourses. But
the share market crisis would eventually pass and it would regain its strength.
The fact is that the present financial crisis was born because of the
increasing financial clout of the developing countries like India and China.
The American companies could not face competition posed by the cheap Chinese
quality goods and marvelous services provided by India at lower prices. The US
companies were forced to retrench their employees. Thus the wages in the US
came under pressure and the American workers could not repay their home loans.
Banks foreclosed those loans, confiscated the mortgaged homes and put them for
sale. Suddenly there were a lot of properties in the market and as a result of
which the property prices crashed. The American banks suffered heavy losses. As
many other countries also had invested in the US banks, they also were hit and
thus the US crisis became a global crisis. In this way the real reason of this
crisis is the production of the world quality goods and services by China and
India.
Globalization means creation of a single market for the whole world. In that
single global market the labor charges also would ultimately reach an almost
equal level. An unskilled worker gets about Rs 4000/- a day in the US against
Rs 200/- a day in India. These two rates would ultimately move towards a common
rate. So the labor charges would decrease in the US and increase in India.
Therefore, this crisis is in favor of India.
In the coming days China and India would become the two leading countries of
the world. The effect of this crisis over countries like India would be
temporary. The decline in the share prices and the value of Rupee in India
would soon come to a halt. The reason of this decline is that the foreign
investors are taking away their money from the Indian stock market. When all
this money is returned both the share prices and the Indian Rupee would go up.
The World Bank president wants to protect the US interests. He does not say
anything about the benefit accruing to the developing countries from this
crisis. He should understand that the days of the US supremacy are over and
China and India would soon become the leading countries of the world. The fact
is that this crisis is the symbol of the victory of the third world countries
like India and China. (The End)
By: Iqbal Amrohi
<a href =”http://www.globalhaat.com”>www.globalhaat.com</a>
About Author:
Syed Iqbal Afsar Naqvi belongs to the famous Indian town of Amroha. He owns a
website, <a href =”http://www.globalhaat.com”>www.globalhaat.com</a>
and writes articles on current affairs, politics and economy under the pen
name Iqbal Amrohi.
http://www.globalhaat.com
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