The Company’s shares began trading on the Tadawul stock exchange on 11 December 2019. The shares rose to 35.2 riyals, giving it a $1.88 trillion market capitalization, and reached the $2 trillion mark on the second day of trading.

Global Positioning

Being a major supplier of oil globally, the company holds a special value in the global supply market. Hence, disruptions in the production process or any other hindrance impacts the global economy as a whole. Saudi Aramco has been attacked twice in the last decade. The 2012 cyber-attack involved several computer systems of the company being hacked. Yet again in 2019, another event took place.

Saudi pipelines, oil installations, and tankers had occasionally been attacked over the past two years, but analysts say what happened in eastern Saudi Arabia in the early hours of Saturday morning is a much larger escalation: a hit to the jugular of the kingdom’s oil industry. At 3.31 am and 3.42 am on Saturday, loud explosions erupted at Khurais oilfield and Abqaiq processing facility, both owned by Saudi Aramco, the country’s state-owned oil company, often described as the kingdom’s crown jewel. The explosions set off fires that took several hours to douse and appear to have caused significant damage. Saudi oil ministry sources said the production had been disrupted by about 5m barrels a day – nearly half the kingdom’s estimated output of 9.7m barrels and 5% of global production.

Economic Implication

Saudi Aramco lost on its a huge portion of crude oil supplies due to the attacks. Eventually, the supply side of the oil market’s demand-supply mechanism changed. With limited oil refining and other activities, the supply decreased keeping the demand the same or slightly increased. These actions led to a new equilibrium where the prices of oil surged with a rise in the stock prices. Eventually, the stocks became overvalued shaking the financial markets with the soaring high prices of oil. The price of a Brent oil rose to almost $72 (£58, up from $60 an oil) by 20 percent early on Monday. That’s a massive jump — the biggest step since the 1980s contract was established.

It then fell down to around $66 a barrel after Donald Trump vowed to unleash some of America’s oil reserves, to make up for Saudi Arabia’s deficit. That’s a two-month record, 10 percent more than Friday night.  Higher oil prices have the potential to pull global growth. It pushes up transportation costs and petroleum-based goods prices. That fuels inflation, leaving less disposable income for consumers.

With appropriate measures and repairs, the oil supply was brought back to normal.

Impact of COVID & Price War with Russia on Oil Prices

With the advent of COVID-19, Saudi Aramco has faced another challenge with profits plunging more than 50% than expected in the first and second quarters. To understand the impact, we again need to consider the demand and supply mechanism. The major demand for oil is from the transportation sectors, business closures, domestic and international travel that kept on declining due to lockdown. This immensely declined the demand, shifting it inwards. A sharp decline in domestic consumption and a possible decline in new investments, declines in tourism and business travel, the spillover of weaker demand to other sectors and economies through trade and production linkages, supply-side disruptions to production and trade, and shifts in healthcare expenditure are just some of the channels through which the pandemic affects the demand side in the market.

Responding to this, Saudi Arabia decided to reduce the supply of oil so as to keep the prices at a moderate level. The proposal was although refused by the Russian’s and what followed was a price war. Saudi Arabia entered a price war with Russia on 8 March 2020, encouraging a 65 percent quarterly decline in oil prices. In the first few weeks of March, US oil prices plummeted by 34 percent, crude oil dropped by 26 percent, and Brent oil dropped by 24 percent. In the aftermath of the COVID-19 pandemic, the price war was caused by a break-up in the dialogue between the (OPEC) and Russia over potential cutbacks in oil supply. Russia walked out of the agreement and the OPEC alliance collapsed. Oil prices had already declined by 30% due to the reduced demand, but with the price war, the result came out to be a global stock market crash.

Saudi Arabia and Russia agreed to slash oil supply in early April 2020, and again in June 2020. On April 20, the price became negative. It should be noted that oil production can be slowed down but not totally halted, and even the lowest possible level of production resulted in higher supply than demand; those holding oil futures became willing to pay to offload contracts for oil they expected to be unable to store.

Current Scenario and Investment Prospects

Lockdowns were lifted in some of the countries including Saudi Arabia in June along with a set of instructions to be considered and followed. Thus Saudi Aramco has seen considerable growth after the oil price crash and managed to earn considerable profits but less than expected. As a result, Saudi Aramco has been reviewing its plans to expand at home and abroad in the face of sharply low oil prices and a heavy dividend burden.

One of the projects that are likely to face the axe or the pause button from the oil major may be its proposed investment in a $44 billion mega refinery project at Ratnagiri in Maharashtra. It is a 50:50 partnership between state-run Indian oil companies and Aramco. It would either exit the investment or would review it again once the market improves, putting it at a halt for the time being. However, Sources said Aramco has already made its stance known on refinery investments in China and a Texas, USA factory. It is also slowing on its planned investments in Pakistan. In India too, the privatization proposal for state-owned refiner BPCL has been delayed by three times so far, in the absence of any firm investment pledge from Saudi Aramco and other investors.

However, it is still working on the $15 billion stakes in Reliance Industries Ltd.’s refining and chemicals business, although lower oil prices are forcing it to slash investment spending. A deal with Reliance would help Aramco join the ranks of top oil refiners and chemical manufacturers. Aramco is already a major crude supplier to India while Reliance sells petroleum products to the kingdom, including gasoline.  The Reliance transaction will help Aramco achieve its target of more than doubling its refining capacity to between 8 million and 10 million barrels per day; At the end of last year, the Saudi corporation had a refining capacity of 3.6 million barrels per day, including wholly-owned plants and joint venture holdings. The gross capacity of the facilities with stakes in Aramco was 6.4 million barrels per day.

State oil company Saudi Aramco has discovered two new oil and gas fields in the northern regions, the kingdom’s energy minister said on Sunday, state news agency SPA reported. The fields haven’t been pinpointed as of now but are already producing oil, condensates, and gas. The two new fields have the potential to contribute to its non-hydrocarbon oil. The Kingdom has been striving for the same as an important aspect of its diversification efforts. A lot of the oil provided by Aramco is used locally for power production, and the business — and the government — are trying to minimize this by replacing gas oil. Moreover, this would also ensure that oil is freed up for exports, leading to an even better dominance over other nations as well.

Conclusion

The Saudi Arabian Oil Company plays an integral part in the world economy as a major supplier and producer of petroleum and its products, natural gas, and crude oil. Amongst many other companies and even countries, Aramco seems to have stabilized quite well considering the aftermath of several incidents that completely changed the market scenario. Moreover, Saudi Arabia relies heavily on its oil and petroleum industries as they are a major source of their income. Hence, how Aramco performs reflects directly on the country’s economy.

Despite the concerns regarding the oil market, analysts predicted that Aramco was better prepared to weather market volatility, owing to its size and scale, its low production cost, and solid free cash flow generation in a weak oil price environment. This is good news for its investment plan for Asia.

The post SAUDI ARAMCO AND ITS ECONOMIC PROSPECTIVE appeared first on WISER WORLD.

The Green Revolution in India began in 1965 under the leadership of Congress leader Lal Bahadur Shastri, which led to an increase in food grain production, particularly in Punjab, Haryana, and Uttar Pradesh. This program was introduced as a package since it depended on regular and adequate irrigation, fertilizers, high yielding seed varieties, pesticides, and insecticides. High-yielding varieties of wheat and rust-resistant strains of wheat were the main milestones in this undertaking.

Need for The Revolution

During British rule, the Indian economic condition had been terrible due to exploitation. Thus, after Independence, the weakened country became vulnerable to frequent famines, low productivity and financial instability. In addition, the rapidly increasing population further led to the need to increase agricultural productivity.

Key Aspects of the Revolution

A major aspect of the revolution was in the form of developments particularly in wheat, rice, and maize forms. The foundation is a modern science-based capacity to change the climate so as to establish better conditions for crops and livestock than nature itself can give such as dealing with the dryness, low soil fertility, invasion by pests, and weeds, threats to livestock and many more. It even looked into the energy requirements if more of it is needed to till the land, mechanize and use fossil fuels. The yield increase in the farming systems of the industrialized countries over the last 150 years can be interpreted as the implementation of this paradigm. The green revolution of the 1970s was focused squarely on this, where the improved rice and wheat varieties could benefit from the use of natural inputs that offered good growing conditions. An important part of this transition was the development of socio-economic fostering conditions that opened up for the use of these products and established opportunities to sell the produce.

However, its overall impact remains debatable, as it has been appreciated as well as criticized too by many on various factors. Let us look into the various socio-economic impacts

Regional Disparities

The Green Revolution brought great economic prosperity in its early years. However, this economic prosperity was limited to certain regions such as Punjab, Haryana, and parts of western Uttar Pradesh. The revolution was hence limited to certain parts of India. The reason for the same is the intensive demand for resources required in these modern technologies. Therefore, states which could easily suffice the increased requirement of irrigation systems and other resources were the only ones to benefit from it. This led to regional economic and infrastructural disparities resulting in fast economic development in certain parts while some states show slow agricultural production throughout.

Unequal Distribution of Wealth

The supply and demand mechanisms before the Green Revolution were worrisome as it dealt with two famines in a span of two years which further reduced the supply drastically. Also, the Indian population has been relatively very high which accounted for high demand but very low supply. With the green revolution, the supply took a major increase which reduced agricultural imports. This was due to the new hybrid variety of seeds which could produce more harvest per acre of land. However, this was beneficial for large agronomists who could easily afford these seeds and other mechanization systems along with insecticides and pesticides and soil nutrient requirements.

Small farmers were not able to finance the various seeds and fertilizers and failed to provide the required irrigation levels leading to crop failure or less than optimum produce. Since supply had increased rapidly, the price of crops fell per acre which was beneficial for the large farmers as the quantity sold increased relatively more than the decline in prices. The sufferers were the small farmers who didn’t even have the stock to supply and even the existing prices fell which reduced their incomes.

Moreover, loans were taken for the same but with declining incomes, they fell into a debt trap. This has been significantly responsible for high suicide rates among farmers.

Following the above-mentioned point, it also led to income inequalities, hence widening the gap between the poor and the rich. With income disparities widening, it gave birth to other socio-economic disparities that led to the over-exploitation of the poor

Employment Dynamics

“If the green revolution is regarded as a package consisting of HYV and fertilizers, its contribution to employment has been substantial. Also, tube wells seem to have contributed significantly to the employment of labor….” “The net employment of tractor-use may turn out to be negative when tractorisation of farms is complete. A harvest combine would displace labor on a large scale while its land-augmenting effect would be negligible.”

Billings and Singh, in their studies on the state of Punjab, have found that the use of irrigation increases the demand for labor whereas the use of tractors or wheat reapers reduces the demand for the same.

However, due to inadequate data, it is difficult to assess and analyze the impact of biological-technological innovations on farm labor.

Environmental Harm & Corresponding Consequences

Ecological balance is equally important which was hampered by the introduction of new technologies and methodologies. Loss of soil fertility, erosion of soil, soil toxicity, depleting water resources, pollution, and salinity of underground water, increased occurrence of humanity as well as livestock diseases and global warming are some of the negative impacts of the Green Revolution. Various scientific studies and surveys conducted on fertilizer and pesticide residues over the last 45 years indicate the presence of nitrates, organochlorines, organophosphates, synthetic pyrethroids, and carbamates at a higher level than the permissible limit in milk, dairy products, water, fodder, livestock feeds and other food products.

Moreover, the overuse of urea, a nitrogen-rich fertilizer, has significantly contributed to global warming. These systematic damages could lead to irreversible consequences to the life of people who are benefited just once if timely, adequate, and sustainable measures are not taken up to mitigate the harm done by the Green Revolution. With the implementation of the green revolution policy in the early 1960s, it was hoped that the pattern of rising food grain production would continue. But sharp variations in the production of food grains were observed in later years, causing insecurities for both farmers and consumers.

Nonetheless, it’s not hidden how environmental harm impacts the economic well being of a country in the long run. It might seem productive and lucrative in the short-run however but with its deep-rooted consequences such as acid rain that pose harm to agriculture by altering the acidity of the soil, reduce productivity, and eventually affect overall output. Similarly, other factors too have long term impacts on the economic well being such as added stress on water resources and agricultural production leading to a lack of raw materials for the manufacturing sector.

Conclusion

To conclude, consumers can be considered as the greatest beneficiaries of the Green Revolution. Real prices of the essentials such as rice and wheat reduced significantly in the markets. Food prices throughout Asia declined to owe to the high yielding, cost-reducing technologies built around improved seed-fertilizer-weed control components. This helps to tackle the rising poverty levels since reduced prices benefit the poor more than the rich as a relatively larger portion of income is spent on food by the underprivileged and poor. Also, the rural incomes were seen to improve but for the large farmers only whereas the small and marginalized farmers suffered. The productivity also improved but just for those who were privileged enough to have access to money as well as natural resources. It has also been reported that with the construction of tube-wells, flour mills, and threshers, the drudgery of women had been significantly reduced. Moreover, in many studies, it has been reported that gender-based bias further deepened with the development of the revolution.

ALSO READ: AGRICULTURAL LABOUR IN INDIA AND THE FARM BILLS

The post GREEN REVOLUTION: SUCCESS STORY OF INDIAN AGRICULTURAL ECONOMY appeared first on WISER WORLD.

Economic Background

Trade

Due to their geographical positioning, these nations are mostly far away from most macroeconomic nations and are isolated from the markets. This increases the cost of transportation of goods and services which is reflected in the price of the final product. With increased prices, the goods become unfavourable in the international markets and are not able to survive the competition, hence exports suffer.

Labor Supply

Moreover, the labour supply market is limited. This leads to labourers having to indulge in multitasking which hinders specialization and productivity as well. The market can not take advantage of specialization and labour segregation. Such factors, along with poor competition and high manufacturing costs, contribute to the micro island nations being “diseconomies of scale”.

With low levels of population and being unable to specialize, these nations are able to obtain little diversification and specialize in one or two goods and services in which they have an advantage over the other economies.

Non-Competitive Market

These economies are generally monopolies owing to a lack of incentives for new producers. When a company gets a monopoly in a market then the prices can be adjusted according to his will and are most of the time. Also, the product does not have close substitutes that do not allow a choice of product to the customer. Hence the power usually lies within the hand of the producer. This leads to poverty and income inequalities within the country.

Poor Government

The per capita Gross National Product (GNP) is also extremely low due to limited production generally for micro island nation economies. Being diseconomies of scale also hinders social and economic infrastructure development. Since the population is low, the number of taxpayers is also low which doesn’t collect as much revenue for the government to ensure infrastructural developments such as highways and roadways, and social infrastructures like hospitals and schools.

Dependence & Vulnerability

One of their major sources of income includes tourism which constitutes an important part of their GDP and also the imports exports too. But this also makes the country vulnerable to events and shocks in the international realm. These economies also dwell on one of the parent economies which is fairly near and most of the trade activities are carried out with them only. Caribbean States depend upon Mexico and the US, the ones in Pacific depend upon Australia and New Zealand. Hence the fate of these economies is also largely dependent on the global market well being of the parent economy.

Natural Challenges

Being island countries they face other natural challenges as well which includes natural disasters and calamities along with global warming. With rising sea levels they are at an increased risk of complete disappearance.

Advantages

However, they also have some advantages as well. Being cluttered and in faraway places, they have exposure to the vast territory of oceans and hence are paid charges by foreign multinational corporations for accessing these territories for fishing and extraction of resources. This is an important part of income. Also, they are seen as very advantageous for other countries to set up military bases on their territories.

Involvement In Money Laundering

Economical & Social Threats

Money laundering is a crucial concern for the world as it interferes with the global economy’s cash flow. Unchecked money laundering increases the demand for money, danger to bank soundness, contamination impact of legitimate financial transactions, enhanced instability of foreign capital movements, and exchange rates due to unexpected cross-border movements of commodities. Besides, it widens the gap between the rich and the poor. It provides the fuel for drug dealers, terrorists, illegal arms dealers, corrupt political officials, and others to operate and expand their criminal enterprises.

Root Cause for the Lucrativity

These economies serve as tax havens for rich billionaires and multinational corporations in other countries as they have very lax or no tax laws. Due of the prevalent tax scenario, in those nations where it stays free, people tend to keep their extra cash or black money away from the trail of their homeland so they don’t get challenged about how the money was received. It may have been possible that the company or person might have been involved in illegal activities to earn the extra money but they are the perfect hotspots for money laundering with the weak security in these micro island nations.

Bahamas

The Bahamas is one such micro island nation that has high levels of money laundering activities in the past. Their positioning near Florida makes them a suitable transit point for drugs heading to the United States. The trafficking is carried out by commercial and private planes and also by blending in with other pleasure crafts which also strengthens the criminal activities. It is “The Bahamas is an international business and financial center with an open economy. The high volume of transactions involving massive, cross-border funds raises the possibility of money laundering by private banks, trust institutions, insurance agencies and corporate service providers. Such methodologies for money laundering may involve purchasing real estate and precious metals and gems.

In a report by the United States Department of State, the Bahamas was listed among major international money laundering jurisdictions in 2018, also highlighting sources of laundered proceeds included firearms trafficking, human smuggling and tax fraud. The US observed that the country had not maintained official records of the business’ beneficial ownership, or required resident paying agents to report payments to domestic tax authorities to non-residents. The findings were detailed in the March 2019 Bureau of International Narcotics and Law Enforcement Affairs – International Narcotics Control Strategy Report Volume 2 on Money Laundering.

Many of the factors that have been found to be responsible for these practices in these nations are: Bahamas law enforcement agencies lack the capacity to successfully execute operations into money trafficking, such as specialized human resources. The legal proceedings against such activities is not that stringent with no convictions for evasions of international taxes. Because of a poor security system and a comparatively lenient judiciary, many corrupt officials and businessmen are fleeing to these nations in case they have to flee their own country.

Cayman Islands

The Cayman Islands is yet another popular name when it comes to hiding money by rich persons and businesses due to the low tax scenario. It hosts more than 100,000 companies which is a questioning data as it outstrips the local population as well. However, the government of the Cayman islands justify the company listings saying that it meets global standards and cooperates with authorities around the world. It is owned by the British and has been set free to set its own taxes.

The British territory realized that it “faces internal and external money laundering and terrorist financing threats,” making it a probable place for international fraud, tax circumvention, as well as drug trafficking and smuggling.

Broad inquiries and convictions on money laundering are non-existent and the use of the Financial Reporting Agency to conduct investigations is benign; the latest mutual evaluation report by the Caribbean Financial Action Task Force has concluded.

The major deficiencies seem to be there in the accounting methodologies, lack of focus on international money laundering and terrorism financing threats.

Conclusion

The economies of micro island nations are at severe disadvantages and need to integrate with the World Economy to grow and prosper as depending on a single country or economy makes them vulnerable and at a disadvantage. However, with the opening of the economies, some have been able to show tremendous growth such as Maldives and Fiji. Other economies can also look into their growth profile, demographics, and take relevant measures. Moreover, due to the tax structure, money laundering has been an extremely frightening problem as it has various social as well as economic impacts. Anti-money laundering laws and regulations, although started, need to be strengthened and properly implemented so as to counter it.

The post MICRO ISLAND NATIONS: HOW ARE THEY MONEY LAUNDERING HAVENS? appeared first on WISER WORLD.

It can be clearly seen that the preceding economic condition was nothing to boast about and already a national concern, but with the current pandemic scenario, not only did we lose all hopes of recovery, the country is now expected to go into an even deeper state of recession.

The financial stoppage in India, quickened by the COVID-19 pandemic, is compromising the occupations of millions, and will as per moderate evaluations drive a million others into miserable neediness. However, there is an improbable partner in India’s fight against neediness and loss of riches – religious freedom and social harmony

“The social side cannot be viewed as different from the economy side. Not only is social harmony desirable in itself, but it is also necessary for investment to flourish and generate growth. In an autocratic system, dissent is more easily suppressed, but in a democratic environment it cannot be suppressed and this means it is important for the political leadership to work hard to create harmony.”- Montek Singh Ahluwalia

However, the scenario is not the same with India since religion has been a matter of conflict since ages. The government needs to ensure that social harmony is being kept and this topic is just too important to be ignored.

Freedom of Religion and Resulting Consequences

Freedom of religion in India is a fundamental right that is guaranteed to every citizen by Article 25-28 of the Constitution of India. It includes the freedom of conscience, the right to practice, propagate and profess any religion of their own will. As many as 172 countries have signed the International Covenant on Civil and Political Rights that protects the right to freedom.

However, since the faulty implementation is one of the basic root causes of any failed scheme, act or campaign in India, so is the application of the above law. Several incidents have been reported where this basic right has been violated in the past and even in the present.

There have been uncountable conflicts happening in India just because of religious disparities whether it entails the destruction or disrespect of someone’s place of worship or their religion itself.  This has resulted in violent attacks and led to a huge toll on the country’s economy with shops being put on fire and resting curfews that slow down economic activity. Social and religious instabilities and conflicts hamper the economic growth, be it the conflict over Ram Mandir or Attack on Indira Gandhi in the late 70s. Communal violence has been one of the weaknesses that result in the loss of millions of lives.

Deviation from the Crucial Problems

There are a variety of issues such as inadequate healthcare, unemployment rates that are soaring high, illiteracy, protection and empowerment of marginalized communities, systematic corruption, eccentric climatic patterns, poverty and sanitation problems for the urban slum dwellers which require resources and hold vital significance in any country’s agendas. However, with the rising violent conflicts in the country, resources get spent to bring the situation under control and are further utilized in the redevelopment of affected areas. This results in increased government spending and hence the focus shifts from the critical areas of concern to such social disputes.

Violence cost the Indian economy $1.19 trillion (over Rs 80 lakh crore) in the year 2018, in constant purchasing power parity terms, which amounts to roughly $595.4 per person, according to a report prepared by the Institute for Economics and Peace based on an analysis of 163 countries and territories. Also, in 2017, violence impacted $1,190.51 billion to the Indian economy, 9 percent of the country’s gross domestic product or $595.4 (over Rs 40,000) per person. On the other hand, government allocation on the education sector has been only a small portion, nearly 3 percent or even less some years, which is an essential need for the county to progress and develop.

The given data pretty much concludes the fact of how resources reduce for rather crucial issues when social harmony isn’t maintained. It is rumoured that many times such conflicts are the fruits of political disputes and conspiracies. Even the focus of the policymakers and thanks tanks gets diverted to such issues and the crucial issues go rather ignored. It has been suggested in many research works that social and religious conflicts hamper the economy as well as the overall development of the country gravely.

Impact on Investment and Foreign Relation

Even trade negotiations, political relations, and allies also get affected because of these disturbances in the social harmony as the various conflicts sometimes lead to a portrayal of poor image for the country.

It has been observed in various studies that countries that have low levels of religious malice and restrictions put up by the government are ranked higher in terms of education, technological readiness, financial markets and many more important parameters that define a country’s growth and development. China even boasts of not having democratic reforms as it believes that just hampers the nation’s economy and leads to dissent and chaos in the country. Investors tend to be happy with countries where social and religious harmony prevails.

“There is disappointment with India and increasing caution among investors since the last election,” said John Lau, Hong-Kong based head of Asian Equities at SEI, which has $352 billion under management. “The recent political moves and laws have distracted the government from economic reforms,” Lau said the disruptions had led SEI to cut exposure to the South Asian nation to below benchmark levels.

In February, as protesters blocked streets for the third straight month, WisdomTree Investments Inc., the US-based fund with $64 billion under management — said it is concerned rising political and social tensions will delay the country’s economic recovery. Western Asset Management Co., the $453-billion investor and affiliate of Legg Mason Inc., said in January — less than a month after protests intensified — that it was reducing its Indian government bond holdings after tensions around a new citizenship law and the Kashmir region.

These incidents show how investment suffers as a result of social and political issues and thus hampers development. When any protest or conflict takes place, a situation of uncertainties tends to dominate and becomes unappealing to the foreign investors especially. Foreign Direct Investment thus suffers greatly.

Environmental Issues

Moreover, social issues such as the environment have been completely ignored by many companies and industries. A possible reason for the same is that environmental degradation is not subtracted from the country’s GDP and the amount of pollution and toxic waste generated does not have any impact on the GDP. This portrays that although the industry might be severely polluting the nearby water bodies, as long as it is generating goods and services, and adding to the GDP it isn’t a matter of concern. But in the long run, environmental degradation would bring town the economy as a whole as many industries are consumers of natural products such as agricultural products, water bodies for all cleaning and production purposes in industries and other raw materials which are necessary for the manufacturing industry. If the supply of these materials is disrupted because of environmental problems then the economy would eventually slow down.

Imports in the country already supersede the exports and the country thus runs a huge trade deficit which is yet another challenge for the Indian economy. If the supply chain gets disturbed, we would have to again increase the imports followed by a decrease in exports which would further increase our dependency on other nations.

Conclusion

Thus social harmony needs to be given special consideration by the government along with environmental aspects if we wish to develop our economy and achieve the target of getting to a five trillion dollar economy by 2024-25 as envisioned by the government of India. The current GDP growth is already way lower than required to achieve the goal and hence relevant steps need to be taken by the government.

The post SOCIAL HARMONY: A MUCH NEEDED SOCIAL PROSPECT FOR INDIA’S ECONOMIC GROWTH appeared first on WISER WORLD.

Who hasn’t heard of the Hiroshima and Nagasaki incidents? Atomic bombs were detonated in these Japanese cities by the Allies during World War II in the year 1945. This led to mass destruction in the country. Over a million people were killed and these two bombings remain the only use of nuclear weapons in an armed conflict. 

Japan is renowned for its extraordinarily rapid economic growth in the 20th century, especially in the first several decades after WWII. Currently, the economy of Japan is the third-largest in the world in terms of nominal GDP. Although Japan is deficient in natural resources, it makes up for it by exporting technologically advanced goods and services since it has highly developed manufacturing and service sectors. Significant contributions have been made in the field of science and technology making it a global leader in the automotive and electronic industries. 

What’s most surprising about the economy of Japan is that even after being destroyed, Japan saw a GDP growth of 10% in the initial period after the war. Too good to be true, right?!  Let us dive deeper into the history of Japan’s economy to look at the factors that led to such a miraculous growth.

PRE WAR

Japan was considered a country that was rich in precious metals like gold, silver, and copper. But, by the time it became possible for Japan to extract such minerals, exports for those were banned. Japan enjoyed good trade relations with the Europeans because they were head over heels for Japanese craftsmanship and metalsmithing. It was also during the time trade flourished that Japan set its foot in the sea and prepared its warships. However, Japan went into a period of isolation in the 1600s and put significant regulations on foreign trade in order to eradicate the spread of Christianization. The economic growth was mild and stable during this period. Porcelain exports rose tremendously in the later period as the Chinese porcelain exporters were out of action. By the 19th century, the country began to open up. 

Major economic development included urbanization along with the diffusion of trade and handicraft industries. The shipping of commodities increased. Sectors like banking and agricultural production witnessed expansion.  Moreover, Japan actively studied western sciences and techniques during this period with the main focus on geography, medical and physical sciences, art, etc. Economic developments of the prewar period began with the “Rich State and Strong Army“. The government also built railroads, improved roads, and inaugurated a land reform program to prepare the country for further development along with adopting a Western education system and focusing on teaching the students with modern science, mathematics, and technology by hiring Westerners.

In a bid to promote industrialization, the government constructed several factories and shipyards that were sold to entrepreneurs at half their price. Such was the success of these businesses that the government emerged as a chief promoter of private enterprise, sanctioning a series of pro-business policies. 

POST WAR

After World War II, most of the industries in Japan had suffered greatly. However, the massive economic growth they achieved astonished the entire world. Industrial growth went up from 27.6% in 1946 to 350 % in 1960, with 1951 being the point that initiated recovery.

This happened primarily because of two major factors.

• The economic reforms brought in by the “Ministry of Industry”. The focus was shifted to the production of raw materials such as steel, coal, and cotton. Additionally, in an attempt to strengthen the workforce, Japan enhanced the inclusion and recruitment of female workers along with some other labor regulations.

• The outbreak of the Korean War in 1950. With the advent of the war, there was a huge demand for Japanese equipment owing to the logistical problems faced by the Korean military in getting supplies from the US. This was accompanied by an investment drive that laid the foundations for a long period of remarkable economic growth.

Since most of the industries were destroyed in the war, on rebuilding they were able to produce more efficiently. Along with these land reforms and mechanization were introduced that boomed agricultural productivity.

As can be seen from Fig. 1, the average real GDP growth in the 1960s remained to be 10%. This was achieved by focusing on the consumer and structural economy that focused on high quality technologically advanced products for domestic as well as foreign consumption along with improvement in transportation. The growth declined to 5% in the 1970s and continued to decrease significantly in the consecutive decades. After the collapse of the Japanese asset price bubble, the economy came to a standstill in the 1990s, which came to be known as the Lost Decade. Real estate and stock markets were greatly inflated which led to stagnation and the country ran into massive budget deficits.

Quantitative easing was used by the Bank of Japan to expand the country’s money supply. However, it failed to induce any growth initially. Later, it began affecting inflationary expectations. In late 2005, the economy finally began its journey on a path of recovery. GDP growth rate that year averaged 2.8%. Unlike previous recovery trends, domestic consumption was credited to be the dominant factor of growth in this scenario.

Despite having interest rates touching zero, the quantitative easing strategy did not succeed in stopping price deflation. Thus, in July 2006, the zero-rate policy was ended but deflation had still not been eliminated. Nevertheless, the economy was able to turn over a new leaf in 2013 because of a smart strategy adopted by the Bank of Japan. In recent years, Japan has been the top export market for almost 15 trading nations worldwide.

Current Scenario

Japan has been facing a major problem of ageing and declining population. The current population of 126.5 million is predicted to decline to 100 million by 2050. This has severe repercussions for the country. Moreover, being an island country it has suffered significant losses due to tsunamis in terms of life as well as property. In addition to this, the tourism industry has not been able to attract many tourists and hence doesn’t earn as much foreign exchange as it should. Besides, since the country’s terrain is not fit for agriculture, it has to import most agricultural products. Moreover, with the current COVID situation and factories being shut down, the country has crashed into another economic crisis after World War II.

The post CASE STUDY OF THE JAPANESE ECONOMY appeared first on WISER WORLD.

China is a one-party state with power lying mainly in the hands of the Chinese Communist Party. Moreover, it is one of the five permanent members of the UN’s Security Council and thus possesses tremendous power and reach.

History of China’s Economy

The trade reforms introduced in 1978 have changed the economic position of the country on a gigantic level. 

After the reforms were introduced, the country began to open and its economy has seen tremendous growth. GDP growth averaged over 10% per year, making it one of the world’s fastest-growing-economies.

Recently, however, due to several imbalances, comparatively low growth rate of institutional development and fast pacing economic development, there have been several reform gaps that have kept the GDP growth rate at 6% per year and it has been decreasing continuously. The country has made Innovation its top priority while working on the strategy for the 2020-25 growth model catering to the current scenario.

China’s Strategic Advantage

China is an upper-middle-income country and a major supplier of raw materials to the rest of the world. It observes major investment from MNCs globally. Most of the products that we use in our daily life are labeled as either made in China or assembled in China.

Apple iPhone, which is considered a revolutionary product, gets its product assembling done in China. Low labour costs were considered the main reason initially but there has been a shift in recent years. Since countries like India, Vietnam, etc. can provide even cheaper labour, hence the question arises, what makes China different?

The answer is the quality of labour and the type of skill provided. As said by Tim Cook “You find in China the intersection of craftsman kind of skill, and sophisticated robotics and the computer science world. That intersection, which is very rare to find anywhere, is very important to our business.”

Thus, comparatively low labour costs, highly skilled labour, the ability to produce big consignment daily due to the strong labour force and a large home market make China an ideal country for product assembly. 

Trade Relations with India

Economic relations between India and China date back to ancient times with the Silk Route being the major trade route then. China is a major exporter of raw materials like pharmaceutical ingredients, steel, electronic devices, fertilizers for India, thus making India as China’s biggest trading partner after the US. India too runs a huge trade deficit with China.

The major inability of Indian companies to produce products at low rates arises because of a lack of research and development facilities, poor infrastructure and incompetent labour policies.

In a survey of about 90 people, it was asked: “What is the main reason that encourages you to buy foreign goods?”

The following were the observations:

Due to this Chinese goods gain an edge and find a huge market in India. Moreover, the Indian population forms a large base for many Chinese apps. These do not mainly contribute to revenue but they help in boosting the reach of the product which is even more beneficial for the companies.

However, with the recent clashes and increasing deficits, the Indian government has banned several Chinese applications and has been constantly focusing on promoting the ‘Made in India’ campaign.

Impact of the Current Situation

With the advent of the current pandemic, almost all economies have come to a standstill. While some of the countries have been able to deal with the situation efficiently and have already observed the peaks, others like the US and India are the worst struck and their economies have faced a major shock. 

China has been accused of hiding information about the virus which eventually led to the pandemic. Markets crashed and the price of crude barrels fell to such an extent that they became negative for the first time in history. Many people have been laid off from their jobs, causing them to fall into debt traps.

However, the current border tensions with China have induced an even greater hatred among Indian citizens towards Chinese goods and services. Many Chinese contracts and tenders have been reworked and the suppliers have been changed. These have vastly affected China’s economy.

Nevertheless, the economic interdependence of the two nations is way too important to be ignored. An all-out boycotting of Chinese goods would force people to buy expensive goods in this period of recession. This would just worsen the situation and the governments would have to further moderate the policies to accommodate the situation.

Conclusion

 It can be rightly said that the expansionist and influential regime of the Chinese government is at an all-time high. China might be taking this course of action to drive the attention of the world away from COVID allegations by having disputes with other nations. However, with this course of action, it is losing a huge consumer base in India. Though low priced quality goods might still prevail in the markets as Indians don’t have good homemade alternatives.

India and China have been embroiled in border disputes since 1962 after the Indo-China talks failed. China has always been intruding in the territorial sovereignty of India, this has been very common but the international community never held China liable because of its veto in UN and structural hegemony in international markets but the advent of COVID-19 has led to an international bias against China. The factual matrix has created a situation in which China might be held liable for the very first time for violating the ceasefire agreement on LAC as it has lost support in the international arena and the CCP is facing extreme criticisms for its violations and misuse of authority.

The first step towards the long turn process of improving the efficiency of production in India should be taken immediately. Trade shouldn’t be stopped but the trade deficit needs to be brought to a balance to prevent other nations from exerting dominance in the future.

China needs to take into account the possible isolation by other countries in the long run which might bring down the already decreasing GDP growth and the scenario before 1978 might come into the picture again. China should acknowledge the need of the hour and help its subordinate countries with the current pandemic, help in building their economies to ensure healthy trade relations, the welfare of mankind and stability. History is evident, Wars cease to create any good, rather are a great way to destroy the global economy, loss of life and property and leave the world in a state of regret and despair. 

The post CHINA’S POSITION IN THE GLOBAL ECONOMY: THE IMPACTS OF CURRENT TENSION ON TRADE AND WORLD ECONOMY appeared first on WISER WORLD.