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Knowledge in Development

Flight of the Chinese Economy

The article discusses briefly the rise of China as the economic powerhouse after 1990.

Development

Kumar Saurabh

The shifting of world powers

As we enter 2008, the countdown is well under way for August's Olympic Games in China. Yet, months before the Olympic torch sparks into life in Beijing, China and its fellow Asian nations have already raced into a position of global leadership.  This year, emerging-market nations, led by Asia, will overtake the rich countries of the developed world to become the most important collective engine for global growth.  As the mighty US economy falters and once-so-superior Europe stumbles, China, for the first time since the early 19th century, will become the largest national contributor to world economic expansion.  That will be true whether China's impact is calculated by measuring what it produces at market values, or after making adjustments so that a dollar would buy the same goods if it was spent in Beijing or New York. This historic - presumably temporary - passing of the baton of global economic leadership from the West to the emerging powers of Asia is a moment as remarkable as the breaking of the four-minute mile. However, as Western governments confront the industrial world's diminishing prospects in what will be their most testing year since the start of the century, the passing of this milestone has left markets fretting over two crucial questions.  First, can these emerging markets really sustain their outperformance, charging ahead at the front of the field even as the big economic powers of the Group of Seven developed countries fall behind? Secondly, will their stamina help to sustain the West's failing performance?  The good news is that the odds look very much in favour of Asia and emerging markets sustaining their strong performance this year despite the G7's plight, a phenomenon that economists have dubbed "decoupling".  The bad news is that while this trend will help to bolster global growth, its benefits to the industrialised world will be limited and are likely to come at a significant cost, both literally and metaphorically.  Scepticism over the decoupling idea remains pervasive among financial markets as well as policymakers. The old dogma that if America sneezes the rest of the global economy must inevitably catch a nasty chill remains a deeply rooted piece of conventional wisdom - understandably so, since investors or governments dismiss the potency of the US economy as a driving force at their peril.  Yet the reality is that this familiar prognosis of inescapable global contagion from America's ills is almost certainly misplaced. Crucially, the exposure of Asia and other emerging markets to this US downturn is vastly less than their vulnerability to the fallout triggered by the dot-com bust of 2000. In the previous US downswing, there was no escape for emerging markets. The huge bubble in internet and technology-related shares was not only an American but also a worldwide trend. When Wall Street fell, stock markets across the world, including those in emerging markets, were, unavoidably, hit. The impact of the financial toll on Asia was then magnified since the region's factories were the world's workshop for huge quantities of the high-tech gear for which demand abruptly slumped.  This time round, things are drastically different. The origins of US economic woes lie in its residential housing market, a sector that has its impact almost wholly within America's borders. As Merrill Lynch puts it: "The world does not build American houses."

Development

pallavi gawas

MACROECONOMICS

It would be helpful for macroeconomics.

Development

Anmol Gautam

GDP

Two primary ways in which GDP is measured are “Real GDP” and “Real GDP in Chain-Weighted Prices.” The first way on constructing the real GDP in base-year prices is to create a price deflator for every good that we can in the economy. That price deflator is defined as the ratio of the price for that good in some base year relative to the price of the good in the current year. The way of looking at GDP is termed the expenditures approach Real GDP in base-year prices for good A=(price good A in one year/price good A in another year) * (price * Quanity of good A in that year.). The price deflator allows So real GDP in base-year prices is equal tot he sum of (C+I+G+X-M), where each component is expressed in real (base year) terms. The other way of measuring GDP is a little more complicated but has an advantage. Real GDP in chain-weighted prices is a result of the introduction of new goods onto the economy. So real GDP in chain-weighted prices is a better measure of output growth. That growth rate will never be revised as the result of technological progress. Growth of real GDP in chain-weighted prices is defined as the square root of {the ratio of real GDP in last year’s prices relative to nominal GDP last year} multipled by {the ratio of nominal GDP relative to real Gdp last year in this year’s prices} That's some of he ways that the annual GDP is retrieved at the end of the year.us to cancel out one years prices.

Development

mannat sharma

Loan Waivers to farmers

Farm loan is temporary solution to a permanent crisis. In India, 55% of the population is involved in farming. According to NSSO, 90% of India’s farmers have land less than 2 hectares. Most of the farmlands are rain-fed. Average farm households make less than 6500 Rs. Per month. Most of them take a loan from the informal sector. Most of the money is used on seeds or fertilisers rather than in mechanization which is the reason behind less productivity. If there is any vagary in monsoon or drought productivity is affected drastically. According to an agricultural specialist at the Indian Council for Research, farmers are selling below their cost and authorities are trying to keep prices low to accommodate the growing demand in cities means it is completely urbanized. All these things are leading to bankruptcy and indebtedness which is raising suicides by farmers who are our food producers. They would quit farming if they can. To give instant relief and reduce social suffering governments (UPA in 2008 and NDA in 2017) found loan waivers as the best temporary solution. According to M Swami Nathan, it is necessary for the short term but in long-term doesn’t provide secure credit system and it does nothing with ending the conditions, root cause which leads to such problems. Also, not helpful to the farmers who don’t have land to have access to the bank. Arundhati Bhattacharya, the chairperson of State Bank of India, said it disrupts “credit discipline” amongst borrowers and that “today the loans will come back as the government will pay for it but when we disburse loans again then the farmers will wait for the next election expecting another waiver. Loan waivers encourage willful defaulters and discourage farmers who pay their loan. Also, making it tougher for the bank to continue lending to these segments. Since most of the loans from moneylenders, private sectors hence it is only helping richer farmers who use the money for building farmhouse marrying off their daughter. Also, it makes difficult for corporation banks to remain in competition when farmers stop paying. Three states UP, Maharashtra and Punjab have written off the loan which is nearly 2.5% of GDP said by Global Banking Group. But for this, money is taken from the centre which leads to increment in fiscal deficit and forces governments to reduce their expenditures in other important areas as UP government has to cut expenditure on key activities like energy(-51%), social welfare and nutrition(-25%). Loan waivers in few states will lead to demand by other states to put enormous pressure on fiscal deficit which will antagonize global capital and slowdowns economy.

Development

shreya singh