How employment in affected
UNCTAD report cautions about further hit by GST.
For ardent optimists betting on India and China to continue to serve as the growth poles that would fuel a global economic recovery, the United Nations Conference on Trade and Development (UNCTAD) has poured cold waters by terming such an expectation as "clearly unwarranted". This is so because as even the growth in the world' two most populous economies—China and India—remains relatively buoyant, the pace is slower than before the crisis and they confront "some serious downside risks".
In its flagship annual publication, Trade and Development Report (TDR) 2017, the Geneva-based UN body that traditionally calls a spade a spade regardless of treading on the toes of rich or poor members, said two factors now sway on growth. First is that oil and commodity prices, while emerging from their recent troughs, are still well below the highs witnessed during the boom years. This has dampened recovery in commodity-exporting countries. Second with developing nations abnegating responsibility for a coordinated expansionary push, austerity has become the default macroeconomic policy position in many emerging economies facing fiscal imbalances and mounting debt levels. India being no exception to this norm with its economic slowdown and monetary policy doing the heavy-lifting with sticking to fiscal deficit target the authorities' mantra.
Without resorting to any persiflage or prevarication UNCTAD said India's growth performance depends to a large extent on reforms to its banking sector, which is burdened with large volumes of stressed and non-performing assets. There are already signs of "a reduction in the pace of credit creation". As debt-financed private investment and consumption have been important drivers of growth in India, the easing of the credit boom is likely to slow GDP growth, UNCTAD noted.
Besides, the informal sector, which still accounts for at least one-third of the country's GDP and more than four-fifths of employment, was badly bruised by the government's "demonetisation" in November 2016, and it may be further hit by the roll-out of the GST from July 2017.
Stating that the explosion of domestic debt since the crisis is proving a major challenge to sustained growth in China as its debt-to-GDP ratio stands at 249 per cent, UNCTAD report minced no words when it observed that the dependence on debt makes the boom in China and India difficult to sustain and raises the possibility that when the downturn supervenes in these countries which is at this juncture manifest in growth slowdown, deleveraging would accelerate the fall and make recovery difficult.
Even as India and many developed and developing countries pitch for inclusive growth to ensure that the gains of growth are distributed justly to iron out widening inequalities, UNCTAD report unequivocally asserts that "inclusive growth across the global economy will remain an elusive goal in the absence of sustained international efforts to manage a coordinated expansion". The report regretted that since 2010, the majority of advanced countries have opted for 'medium' to 'severe' austerity, and even the countries that have considerable fiscal room for manoeuvre have resisted robust expansion. Until recently, some major emerging market economies were exceptions to this trend, but evidence suggests that they too are now curbing expenditure with a view to fiscal consolidation.
As to the recurring issue of whether trade can bail out countries by paving the way for growth, the UNCTAD report casts doubts contending that even world trade is likely to pick up this year from its very sluggish performance in 2016, the sustainability of the export surge from emerging markets that underlies and underpins this improvement is unlikely this year. Given the weak worldwide demand, global trade is unlikely to serve as a broad stimulus for growth, other than for particular countries that benefit from special circumstances. Besides, hopes of an imminent breakthrough in multilateral trade negotiations under the WTO umbrella with a strong development orientation are 'fading'.
Taking a broader view of how hyper-globalisation with the help of the very visible hand of the State has recovered its poise, business as usual has set in, the push for light-touch regulation is underway yet again and austerity is the preferred response to 'excessively' high levels of public debt, the report emphatically argued that "no social or economic order is safe if it fails to ensure a fair distribution of its benefits in good times and the costs in bad times". It singled out hyper-globalisation as the principal villain of the piece and extant predicament of the world economy, stating that unlike the textbook world of pure competition, hyper-globalisation has led to a considerable concentration of economic power and wealth in the hands of a remarkably small number of people.
That is the reason why UNCTAD's TDR this time around presciently warns that as long as organised business faces little pushback across several key sectors, increased market concentration and the spread of rent-extracting behavior would persist apace. This would exacerbate inequalities that have been rising over the past three decades of hyper-globalisation and technological changes might worsen the situation if they hamper job creation, adding to a growing sense of anxiety.
Pointing out that how market concentration for the top 100 firms rose fourfold in terms of market capitalisation but less than doubled in terms of employment, UNCTAD said this lends further support to the view that hyper-globalisation promotes "profit without prosperity" and that asymmetric market sway is a strong contributory factor to rising income inequality across the universe. The report also singled out the intense lobbying by the patent community, mostly in the rich world, as a major force driving the consolidation of market power, along with regulatory capture by large corporations. It further pertinently noted that multinational corporations' excessive use of patent protection for defensive purposes also directly hits "innovation dynamics in major emerging economies such as Brazil, China, and India".
What is more deplorable is that mounting evidence suggests that other non-financial rent-seeking ploys such as tax evasion and avoidance, public sector gouging (of both assets and subsidies) and rampant market manipulation to boost compensation schemes for companies' top management are being adopted by firms not only in the more advanced economies but also increasingly in developing ones. In order to correct these imbalances which entail systematic and concerted action at the national and international levels, UNCTAD plumps for forging a global new deal. In this regard, it said States require the space to tailor proactive fiscal and other public policies to boost investment and raise living standards, bolstered by regulatory and redistributive strategies to tackle the triple tasks of large inequalities, demographic pressures, and environmental problems. The moot point is whether the global community has the gumption to launch such a new deal before long to rescue the global economy from sinking to new lows?
(The author is a freelance commentator on economic issues. Views expressed are strictly personal.)