18th October 2019 – The Hindu Editorials Notes- Mains Sure shot
Question – What do we mean by global economic slowdown? Where does India stand in this and what can be done?(250 words)
Context – the ongoing global economic slowdown.
What is global economic slowdown?
- Global economic slowdown is like a recession on a global scale.
- A recession is a significant decline in economic activity spread across the economy, lasting more than a few months, normally visible in real GDP, real income, employment, industrial production, and wholesale-retail sales.
The present scenario:
- The IMF (World Economic Outlook) expects a global economic growth to be just 3% this year. It is the lowest since the 2008 global financial crisis.
- But unlike 2008, when India was in a position of insolation (not much affected) from the slowdown, at present India is on the edge of it.
- The growth in the first quarter of 2018-19 has hit a six-year low of 5% and the growth projections are being slashed down (reduced) for the financial year 2020.
- If we want to successfully deal with it, it needs to understand the factors behind it.
So what are the reasons leading to the global economic slowdown?
- This is an age of global integration so if something goes wrong all get affected.
- The main trigger lies in the protectionist tendencies of world economies at present times and also the U.S.-China trade war.
- The global economic slowdown seems to have started in early 2018, when emerging economies such as Brazil and South Africa got into a recessionary stage.
- Also a big country like China started slowing down and recently the U.S.-China trade policies have worsened the global situation.
India amidst this slowdown:
- Since we live in an integrated world, the spillover of the global slowdown is likely to affect us all.
- But what has happened in India which is making the matters worrisome is the present domestic situation. Among which prime is the NBFC crisis. The Non Banking Financial Companies were the main source of credit to the small businessmen. The crisis in this sector has affected the flow of credit to capital goods.
- Now capital goods are required to do production. So apart from the factor of reduced consumption in the economy (which has its own reasons and we have talked about the reasons in detail previously) which is leading to low production, another is the reason of small businessmen not taking credit because of NBFC crisis.
- Also because of reduced consumption, demand for capital goods (capital goods means mainly machines etc that help in the production of final goods) is down, car sales is down and also the real estate is in trouble.
- So the flow of credit (money) to this sectors, which were an important determinant of sales, has been affected.
- This has resulted in a spillover in the rest of the economy.
So what needs to be done?
- In this scenario, since the investment in capital goods by the private sector is low (because of reduced demand), the government needs to invest.
- At present public investment is very critical.
- So where should the government spend? – the government should take part in social spending which affects people in need with high propensity (tendency) to consume. Because any cash reaching the poor will find its way into the market quickly. While the reduction of corporate tax on the other hand will only have a medium-term impact.
- In the short term, the government needs to put money in the hands of the poor, which pushes it into the market, leading to aggregate demand increase and in the process, the government can also address the inequalities in the recent times.
- Also India’s exports have not been able to keep pace with expectations, especially in the labour intensive sectors like textiles. Also the U.S.-China trade war has pushed many companies to shift their production base from China to other countries like Vietnam and Bangladesh because U.S. is charging higher tariff on goods made in China so they are trying to produce in other countries where labour is cheap. India could not take advantage of this situation (why has been discussed in detail earlier articles). So the companies shifted their base to Vietnam and Thailand instead of India.
- Also the Indian companies depended on the huge domestic market to produce and sell their goods. They overlooked the global and regional markets even though India is a part of various preferential market agreements.
Way forward/ What can be done?
- What we should do is take steps to boost demand in the market through public spending in areas that will put money in the hands of the poor.
- Second, we need to understand that the dynamics of world trade is shifting from the west to the Eastern side. In the Western markets the demand is low and there is also a rise in protectionism. In such a situation we need to tap the Asian markets. In this context the RCEP (Regional Comprehensive Economic Partnership) is an important initiative. It gives us a possibility to integrate the Indian economy and production with the value chains in east-Asian countries.
- Also a very important factor is competitiveness in the exchange rate. We need to avoid appreciation of the rupee if we want to strengthen the domestic manufacturing industry. Any appreciation of the rupee facilitates more imports and less exports, adversely affecting domestic production.
- Also there needs to be consistency in policies. Also revive the basics like NBFCs.
- And finally as the IMF said we need to increase the domestic finance and improve governance mechanisms.
Question – There is an urgent need to make Climate change an integral part of the planning of Indian cities and towns. Elucidate.(250 words)
Context – Recent Summit C-40 cities initiative
- Cities represent an estimated 70% of global carbon dioxide emissions.
- Nearly 90% of urban areas are at high risk from extreme climate events such as storms, because they are situated along coastlines. These cities are home to millions, many of them poor and ill-equipped to handle floods; many also endure cycles of drought and heat waves.
- urbanisation will remain a strong trend this century. Annually, about 70 million people will be drawn to cities and towns for the next three decades, according to the special report on global warming of 1.5°C issued by the IPCC last year. Governments in India, must prepare for difficult times with action plans for urban centres.
- since much of the infrastructure in India remains to be built, All planning must therefore be climate-centric.
Some steps taken by different cities at world level
- In Copenhagen, plans to retrofit buildings for energy efficiency and shift their transport infrastructure to greener options. Montreal is shifting city logistics to electric vehicles, keeping large trucks confined to centralised terminals. India does not have to repeat the cycle and can leapfrog the era of dirty fuels.
- Rome’s plan to ban diesel emissions, encourage sustainable shared mobility including biking and walking, and pursue a green new deal.
- China’s Hangzhou already has the largest public bicycle-sharing system and is moving to a smart bus service.
- Hong Kong is ready to harvest super typhoons in new drainage tunnels that will reuse rainwater and grow biodiversity.
- Singapore will put a price on carbon.
- India’s fast-expanding cities and towns need such far-sighted measures. But today, climate change is not integral to their planning, despite the risk to residents and economic assets.
- It will take innovation, technology and financing to adapt to drought, floods and heat islands.
- At the recent C40 summit, Kolkata bagged an award for green mobility, and the national capital was cutting emissions by inducting 1,000 electric buses, planting trees on a massive scale, and eliminating the use of dangerous industrial chemicals. These must be the priorities for all cities.
- Steps to reduce carbon emissions in cities :
- green urban spaces,
- sustainable mobility,
- protected water sources And
- reduction of waste .