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For much of modern history, power was mostly measured by military strength. Borders shifted through conquest, and influence was enforced through force. In the past couple of decades, there has been a gradual shift in this paradigm. While military capability still matters, the primary instruments of power today are economic and technology. In the contemporary world, access to capital, technology, markets, and resources often determines outcomes more effectively than armies. Trade rules can shape behavior. Financial sanctions can immobilize economies. Control over technology standards can define the future of entire industries. Unlike traditional warfare, economic power operates quietly. There are no declarations, no battlefields, and no formal endings. Yet its effects can be just as lasting.   The latest events in Venezuela also need to be looked at from this Lense. Export controls, tariffs, financial restrictions, and regulatory barriers are now routine tools of statecraft. They ar...

The idea of a “global reset” has gained popularity in recent years. It reflects a widespread sense that the extant world order is no longer working and a fundamentally new thing needs to emerge to replace it. Total collapse of global growth in the past couple of decades, unsustainable trade balances, and excessive socialism (social security in developed countries) have raised the specter of a total collapse in the global order, just like it happened in the early part of the twentieth century. While this feeling is understandable, the term itself might be misleading, in my view. What we are witnessing may not be a reset, but a reorganization of global institutions and systems. Global systems rarely collapse overnight. Instead, they evolve unevenly, often while appearing stable on the surface. Trade continues, markets function, currencies circulate, and institutions remain intact. Yet beneath this continuity, the logic guiding decisions is changing. For much of the post–Cold War era, eco...

Continuing from yesterday… ( see here ) Investors world over are currently faced by a common challenge, viz., divergence of asset prices from the underlying fundamentals. This is particularly true for the investors in equities, precious metals, and treasuries. Nonetheless, they are staying invested, or even increasing their exposure and/or leverage driven by greed or lack of alternatives. If you take a note of the macroeconomic fundamentals of the top 10 global economies, you would notice that the growth trajectory of most economies is still lower than 2019 (pre-Covid) levels. Though, the growth rate of some emerging markets, like India and Brazil has recovered to the pre-Covid level, on several other parameters like unemployment, fiscal balance etc. these economies are also still struggling to regain even the pre-Covid momentum. GDP Growth:  Most of the top 10 global economies have recovered from the 2020 contraction, but rates remain below 2019 levels in advanced economies due to...

The US administration has announced imposition of 50% additional tariffs (25% reciprocal and 25% penal), over and above the regular/MFN tariffs that were already in place, on merchandise imports from India. Certain items, like pharmaceuticals, that are part of separate trade negotiations, and services are presently not part of the new tariff rates and continue to be charged at the extant rates. This level of tariff is indubitably concerning, as it makes numerous Indian MSME businesses, especially those exporting textile, leather goods, small components, jewelry, carpets etc., incompetitive; and in many cases poses an existential threat to the exporting entities. For several MSME the US market contributes a substantial part of their revenue; and these entities were enjoying some advantage over competitors due to lower MFN tariffs. They not only lose this advantage, but become materially incompetitive due to these tariffs. These reciprocal and penal tariffs, in my view, tantamount to...

  Where did we lose our way? My engagement with Indian financial markets began in the late 1980s, at a time when the winds of reform had just started sweeping through the economy. What followed in the 1990s was a structural reset — the kind that lays the foundation for decades of growth, even if its full implications aren’t immediately visible. The decade of 1990s witnessed – (i)     An overhaul of the financial sector with abolition of capital controls, opening of doors for the foreign portfolio investors, entry of private banks in the markets, material liberalization of the rules for non-bank lenders (NBFCs); laying foundation for pension and insurance sector reforms; (ii)    Significant liberalization of the industrial licensing system; material dilution of the Monopolies and Restrictive Trade Practices Act and Foreign Exchange Regulation Act, de-reservation of several articles from Small Scale Industries, introduction of Liberalized Exchange Rat...

The Middle East is once again a tinderbox, with the escalating Israel-Iran conflict threatening to spiral into a broader global crisis. Unlike the recent Indo-Pak hostilities, which remained contained, this clash carries the potential to draw in multiple nations, disrupting global trade and energy markets. For India, which is heavily reliant on energy imports, the stakes are high. While India has reiterated its neutral stance, the ripple effects of a prolonged conflict could significantly impact its energy security, inflation, current account balance, INR exchange rate, fiscal stability, and overall economic growth prospects. This global flashpoint could have local consequences The Israel-Iran conflict differs starkly from localized India and Pakistan military engagements. With China and Pakistan openly backing Iran, and Russia potentially supplying critical defense equipment should the U.S. directly support Israel, the geopolitical fault lines are deepening. For India, this pres...

President elect of the US, Donald Trump has already designated key members of his team. Based on his election agenda, speeches and rhetoric and personal views of his designated team members, market participants are speculating about the likely policy framework of Trump 2.0 administration, and its implications for the global trade and markets. My personal view is that the actual agenda of governance might have some shades of the election rhetoric but its actual path may not materially deviate from the trend seen in the post GFC (2009) period. At this point in time, I do not expect to sight any black swan in global economics and/or markets. With this caveat, let me summarize the current market speculations and its likely impact on India. Trade tariffs Trump has been speaking about imposing high tariffs on the US merchandise imports to promote local manufacturing, cut US trade deficit and strengthen USD. He has been suggesting 20% universal tariff on all imports, 60% tariff on impor...

Urbanization is intrinsic to development and often serves as a major driver of economic growth. As India reaches tipping point of transitioning from a mostly rural to an urban society, the focus must be on ensuring the best opportunities for economic growth for all sections of the society. — Dr. Rajiv Kumar, Former Vice Chairman, NITI Aayog In October 2020, the NITI Aayog formed an Advisory Committee on  ‘Reforms in Urban Planning Capacity in India’ , to find ways to face the multiple challenges being faced in the cities and India’s commitments towards global agendas. After extensive deliberation with domain experts and think tanks, the Committee presented its report in September 2021. The highlights of the report are summarized below. ·           India is the second largest urban system  in the world with almost 11% of the total global urban population living in Indian cities. In absolute numbers, the urban population in India is m...

A new central government will assume office in India, in a few days. This is a great opportunity to look at the current state of affairs with a new perspective and reorient the policy framework. The present state of the Indian economy is characterized by the rising incidence of unemployment, disguised unemployment, and underemployment; higher than acceptable socio-economic inequality; strong and rising intellectual and skill inequality; gradually bridging but still high regional imbalances; low productivity especially in the agriculture sector; oversized government with abysmal level of decentralization; incapacitating supply constraints, especially in social and physical infrastructure terms; and trust deficit at all levels. A younger demography provides high potential in terms of growing workforce and consumption demand. However, the potential remains under-exploited due to low skill levels, lack of adequate employment opportunities, financial and social exclusion, and disillusionm...

Verdict 2024: Market Implications An analysis of the past 30 years of market trends provides no evidence to suggest that elections, the form of government, or the strength of a particular party in the parliament impacts the market performance significantly. However, it is common to see higher volatility during or around elections. Insofar as the fear of a multi-party coalition or a fractured mandate is concerned, I believe, the investors should be relieved by the prospects of a true coalition coming to power. Because, in the post-independence era, the best periods for the Indian economy have been those when a “coalition” government was in power. It is however important to note that by “coalition” I do not mean just a multi-party government. In my view, coalition government means where people with diverging socio-economic policies jointly participate in a government. Empirical evidence suggests that such coalition governments in India have agreed on a common minimum agenda and foc...