"Do the things you know, and
you shall learn the truth you need to know."
-Louisa May Alcott (American,
1832-1888)
Word for the day
Schlemiel (n)
An awkward and unlucky
person for whom things never turn out right.
(Source: Dictionary.com)
Malice towards
none
The simple question is
"whether OROP will remain confined to armed forces, or it will spread to
other public services also?"
A more complex poser would
be "Should it?"
Jounrey more important than destination
Speaking to the journalists at the sidelines of G-20 meet in
Ankara, the finance minister Arun Jaitely reportedly said, "Factors
like the Chinese devaluation of yuan and the US Fed's likely interest rate hike
are "transient" and it will be only the real economy that will
dictate the currency rate fluctuations and markets in India".
I am not sure whether this statement was made in zest or he really
meant it. For, if he really meant it, the observers may want to evaluate if he
is living in denial. I would leave it here.
Nonetheless, in my personal belief such events are never
"transient". Though cyclical in nature such events invariably leave a
lasting impression on global economic structure.
First, standing here in summer of 2015, many market participants
who are in their 20's and 30's may see watershed events like making and
dissolution of USSR; erection and demolition of German Wall; beginning and end
of cold war; signing and termination of Bretton Wood Agreement; rise and fall
of Japanese Yen; rise and fall of Asian tigers as "transient" in the
global economic and political order; whereas those in their 70's and 80's might
still be considering these events in their investment, trading and risk
management strategies.
The lesson here is that what is "transient" to an
anthropologist or geologist may not be so to a historian or politician.
Secondly, specifically speaking, US Fed rate hike this time is
nothing like a point in normal monetary policy cycle. This follows almost a
decade of unconventional monetary policy measures that have created imbalances
of gigantic proportion in the global economic order. The rate hike would signal
the recognition of need for normalization. The process would be lengthy,
extensive, somewhat disruptive and not without pain. Denying it as
"transient" could have disastrous consequences.
Similarly, liberalization of CNY might mark the beginning of the
correction of a prolonged inconsistency in the global economic order. The
disproportionate trade imbalances created through "controlled" CNY
since the entry of China in WTO winter of 2001 will correct to the detriment of
lenders and commodity suppliers who have created capacities to match inflated
Chinese demand.
The general view is that these corrections in global order will
create good opportunities for India. But these opportunities will not occur
automatically. India may perhaps need to effect necessary corrections in her
own socio-economic structure to become compatible to these opportunities.
For example, over next decade China may have to run down its forex
reserves to compensate for the lower trade and capital inflows. Similarly, the
commodity economies thriving on credit driven Chinese and other EM demand may
also run down USD reserves to compensate for lower Chinese demand and collapsing
commodity prices. USD yield may rise consequent to Fed rate hike attracting USD
investments (or carry trade unwind) from across the world. Consequently, the
global economy may face a "transient" liquidity shortage.
The wealth of Indian investors could erode materially in the transition if
the government does not create conducive environment to attract adequate global
flows to compensate for FPI outflows in this period.
