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WEF 2022: Advanced economies to be back on track by 2024, says Gopinath

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Advanced economies will be back on track by 2024, but developing economies will be 5 per cent below where they would have been otherwise, IMF's Gita Gopinath saidGita Gopinath, Chief Economist, International Monetary Fund (IMF), speaks at a press conference at the World Economic Forum Annual Meeting 2020, Switzerland. Photo: PTIAdvanced economies will be back on track by 2024, but developing economies will be 5 per cent below where they would have been otherwise, IMF's  said on Wednesday.

Economies worldwide have been adversely impacted by the  pandemic and are slowly coming back into the recovery path.

The First Deputy Managing Director of the International Monetary Fund said the war in Ukraine has been a major setback to the global recovery.

"We had a serious downgrade to the global growth rate and the world continues to face headwinds because we have a cost of living crisis. Prices of commodities including fuel and food are going up around the world," she said.

Gopinath said central banks are trying to tackle this high level of inflation and are raising interest rates sharply, which they need to do, but that will also have consequences for global finance and trade.

She was speaking at a special session on 'What next for global growth?' during the  Annual Meeting 2022.

Gopinath said there are very divergent recoveries around the world.

"While advanced economies, as per our estimates, will basically get back to where they would have been in absence of pandemic in 2024, but emerging and developing economies would be 5 per cent below where they would have been in the absence of the pandemic," she said.

The panelists discussed that the recovery from the COVID-19 crisis has been deeply uneven within and between countries, depending on their access to fiscal resources and vaccines.

As food, fuel and resource crises now risk further derailing an equitable recovery, they discussed how a broader set of foundations for growth can ensure long-term economic prosperity and a return to international convergence.

Also Read:-US stock futures edge up ahead of Fed minutes release

US stock futures edge up ahead of Fed minutes release

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The Fed had at the May 4 meeting raised its target for the overnight bank-to-bank lending rate by half a percentage point, to a range of 0.75-1 percentUS stock futures edge up ahead of Fed minutes release

US stock futures edged up on May 25 ahead of the much-awaited release of the minutes from the recent Federal Reserve meeting, which market observers will closely track for clues regarding the speed and extent of future interest hikes.

The Federal Reserve, in its meeting early in May, hinted at a more aggressive stance by hiking the cost of borrowing. Investors expect a series of 50-basis-point rate hikes over the next several months. One basis point is one-hundredth of a percentage point.

Ahead of the release, Wall Street futures inched up after the Nasdaq Composite had dropped 2.35 percent and the S&P 500 lost 0.8 percent on May 24.

The US dollar index, which measures the currency against six major rivals, rebounded 0.16 percent to 101.92, a level not seen since April 26.

Bullion dropped from near a fortnight-high, with the greenback rising from the lowest in almost a month's period.

During the May 4 meeting, the Fed raised its target for the overnight bank-to-bank lending rate by half a percentage point, to a range of 0.75-1 percent, and Chairman Jerome Powell suggested that similar-sized measures would be undertaken in June and July to tame the worst inflation in the 40 years.

Minutes are expected to highlight a consensus over the view that the Fed funds rate should be neutral by 2022-end. Atlanta Fed President Raphael Bostic has publicly said he supports an expeditious return of monetary policy to a more "neutral stance" to bring down inflation that is currently running at more than three times the Fed's 2 percent target.

Bostic also said on May 23 that he would like to pause further rate hikes at the Fed's September meeting to allow time to assess the impact of tighter policy on the economy and inflation. The publication of minutes from the Fed's May meeting could show how widely held that view is, and what other options are under consideration.

India committed to strengthen multilateral trade system: Goyal to WTO chief

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Commerce and Industry Minister Piyush Goyal met World Trade Organisation Director-General Ngozi Okonjo-Iweala and reiterated India's support for strengthening the multilateral trading systemPiyush Goyal

Commerce and Industry Minister Piyush Goyal on Tuesday met World Trade Organisation Director-General Ngozi Okonjo-Iweala and reiterated India's support for strengthening the multilateral trading system.

During the meeting on the sidelines of the World Economic Forum Annual Meeting 2022 here, Goyal said India is committed to the WTO's efforts to strengthen the multilateral trading system to ensure free and fair trade among member countries.

He also met Swiss State Secretary Marie-Gabrielle Ineichen-Fleisch and exchanged views on enhancing India-Switzerland trade ties.

"India is an attractive market for Swiss cutting-edge technology and expertise to achieve scale and serve the world," the minister tweeted later.

Among his various meetings, Goyal also met Queen Maxima of the Netherlands and held talks on ways to further strengthen and renew Indo-Dutch ties by expanding business and investment opportunities while also exploring prospects of joint cooperation between the two countries.

He also met UAE's Minister of State for Foreign Trade Thani bin Ahmed Al Zeyoudi and Indian Energy Alliance Executive Director Fatih Birol; Denmark's Minister for Industry, Business and Financial Affairs Simon Kollerup; and Bangladesh's Private Industry and Investment Adviser to PM Salman F Rahman.

Also Read:- Modi Govt @ 8| Two vexing defence problems the Narendra Modi government has dealt with

Modi Govt @ 8| Two vexing defence problems the Narendra Modi government has dealt with

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Under the Narendra Modi-led government, we have seen a refreshingly bold departure from the past when governments seemed unwilling to deal with two defence-related problems: the pension issue, and the more debilitating matter of reliance on foreign arms Modi Govt @ 8| Two vexing defence problems the Narendra Modi government has  dealt with

May 26 marks eight years since Narendra Modi became Prime Minister of India, and since 2014 a Bharatiya Janata Party (BJP)-led National Democratic Alliance (NDA) government has been in power at the Centre. Where defence and national security are concerned, the people of India have been told that this government is sufficiently alert and effective in protecting national interests and territory.

The government has proved particularly adept in wrapping itself around the flag and associating with the military. Unwittingly though while resolving some longstanding issues, other equally baffling problems have been created.

The government has delivered, for instance, on its ‘One Rank, One Pension’ promise — a nettlesome issue previous governments kicked down the road for want of financial resources. In the 2022 defence budget of Rs 5.25 lakh-crore, the Rs 1.19 lakh-crore pensions bill combined with the outgo on payroll expenses exceeds the spend on force modernisation and maintenance costs. Should this trend continue, India will soon be able to afford either an adequately sized force, or the weapons to equip it supported by minimal stocks of spares and ammo — not both.

It may be recalled that based on the projected economic growth rate, and assumption of annualised 10 percent increase the defence budget was expected to reach the 3 percent GDP level recommended by the 11th Finance Commission by 2004. In reality, the defence budget has stagnated at the 2-plus percent of GDP level, and budgetary increases have barely kept pace with inflation. The result: No buck, no bang! Still the armed services have managed somehow to contend with live, disputed, borders with China and Pakistan. How well? Don’t ask.

There is a simple two-pronged solution that has not so far occurred to the Government of India. First, to match the military manpower cuts, the strength of 400,000 ‘defence civilians’ employed by the Ministry of Defence (MOD) should be slashed by half. India needs DRDO scientists, engineers, and the like, but can do without the horde of peons, clerks, stenographers, and section officers clogging up the MOD and other government offices everywhere. Official business conducted through a safeguarded computer network will eliminate the hopeless files-system and the endless numbers of babus associated with it, and coffee/tea machines can replace peons, and improve the MOD’s dismal operating efficiency.

Second, the defence civilian pensions should be shifted to the Government of India administration pensions account, thereby, at a stroke, freeing up roughly 80 percent of the defence pensions bill monopolised by retired defence civilians. It is monies the armed services can utilise to sharpen their war-fighting capability.

Through these two steps the Prime Minister can be credited for, (1) modernising the Indian military, making it razor-sharp, without raising the defence allocation, (2) digitising and de-bureaucratising the MOD (as a test bed for upgrading the government’s conduct of business), and; (3) removing the demeaning caste-like hierarchy featuring low-grade workers.

The other major change in the defence sphere is the drive to make India self-reliant in armaments. Again, Modi had the right idea with his aatmnirbharta policy. Except, in the years since he mooted it, there has been more confusion and drift than genuine progress; a situation not improved by a series of updated defence procurement procedure documents issued by the MOD that regularly trip up Defence Minister Rajnath Singh and ministry officials as much as they do the military brass and public and private sector defence industrial companies.

No one is quite sure what aatmnirbharta means. Do foreign companies producing dated military products (F-16 fighter plane, say) fit the guidelines? But doesn’t that undercut the objective? To compound the confusion, Singh in the past year has released lists of military goods the armed services can no longer import, including major weapons systems such as helicopters, artillery guns, warships, and submarines. It is supposed to encourage in-country research, design, development and production of advanced weaponry, and support systems, save the country tens of billions of dollars in hard currency, seed a vibrant defence industrial ecosystem to meet the armed services’ equipment needs, to generate export revenues, and have a multiplier effect on the rest of the economy.

Singh’s negative lists, prima facie, suggest the government wants results fast, to obtain which it is prepared to throw all concerned parties into deep water, and hope they learn to swim. This, incidentally, is the correct approach to shock the armed services, the MOD, and defence public sector units, habituated to weapons systems screw-drivered from imported completely knocked down (CKD) and semi-knocked down (SKD) kits, out of their licensed manufacture comfort zone.

Denied the import option, the military will have to take ownership of indigenous weapons projects and, crucially, prepare to fight with Indian-designed armaments that may not initially meet the foreign weapons standard. It is an unavoidable stage in making aatmnirbharta work.

The Modi years to-date have seen a refreshingly bold departure from the past when the government seemed unwilling to deal with the two main tasks at hand, namely, the pensions issue that had the entire military community up in arms, and the more debilitating matter of reliance on foreign arms.

The solution for the first problem was enabled by the government’s readiness to sequester the necessary funds and take a financial hit, and for the second, was the decision to kickstart the Indian defence industrial economy by closing off the imports channel, and incentivising the public sector and private sector companies with promise of full order books. India may finally be on the way, hiccups apart, to consolidating its military power.

Bharat Karnad is Distinguished Fellow at the United Service Institution of India and Emeritus Professor at the Centre for Policy Research. Views are personal, and do not represent the stand of this publication.

 

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