INDIA AND THE GLOBAL ECONOMY 1 GLOBAL ECONOMY

INDIA AND THE GLOBAL ECONOMY

1.       GLOBAL ECONOMY

the global economy is expected to grow by 3.5 per cent in 2012 compared to 3.8 per cent in 2011 as per the international monetary fund’s (IMF) July 2012 update of the world economic Outlook (WEO). Gross domestic product (GDP) growth in advanced economies declined to 1.6 per cent in 2011 compared to 3.2 per cent in 2010 and is expected to be even lower at 1.4 percent in 2012.Growth in emerging economies slowed to 6.2 per cent in 2011 compared to 7.3 per cent in 2010 and is projected to be 5.6 per cent in 2012. The US economy seems to have revived somewhat and is projected to maintain its growth rate at 2 per cent for 2012. Even so, economic growth in the US remains sluggish despite extensive use of both fiscal and monetary policy tools. The euro zone is expected to contract by 0.3 per cent in 2012.

The predominant reason for the subdued growth in advanced economies at this juncture remains the sovereign debt crisis that started in the peripheral economies of the Euro zone, but from the latter half of 2011, started to adversely affect the major economies there, as well, . issues relating to medium – term fiscal consolidation, the exposure of European banks to public and private debt, and recurring differences in the ways to resolve the crisis have continued to weigh on the global economic outlook s the Euro zone accounts for close to one-fifths of global GDP.

Volatility in capital flows resulting from the spillover effects of monetary policy choices and other uncertainties in the advanced financial markets further impacted exchange ratites and made the task of macroeconomic management difficult in many emerging economies. Ties has brought out a new dimension of globalization in the post financial crisis world, where easy monetary policy in one set of countries may result in inflation elsewhere due to cross – border capital flows.  .

Over the last 20 years sustained; growth of a number of large emerging economies, especially the BRICS economies, has resulted in an increase in their share in the global GDP. As a consequence, the value addition in the world economy has been moving away from advanced countries towards what have been termed emerging economies. The decline in share is particularly marked in the case of the EU. The shift towards Asia has been significant hand, within Asia, away from Japan to china and Indian. The fivefold increase in share of china in the global GDP has placed it as the second largest economy in the world. The increase in share of India. Though less dramatic, is nevertheless of an order that places her as the third largest economy in PPP terms, having surged ahead of Japan.

INDIA IN THE GLOBAL ECONOMY

India has over the years become a more open economy. The total share of imports and exports accounts for close to 50 per cent of GDP. Yet economic out comes and their impact on growth and development arising from the interaction between the domestic and external economies are contingent on a large number of factors. Though economic outcomes are to some extent contingent on choosing policies appropriate to the conditions characterizing an economy, outcomes are to some extent contingent on choosing policies appropriate to the conditions characterizing an economy, the relative position of an economy vis – a – vis other countries s in a global setting could facilitate (or even constrain) policy choices.

India has moved  up the ranks but is still the poorest aiming the G-20: India has emerged as the third largest economy globally with a high growth rate and has also improved its global ranking in terms of per capital income. Yet the fact remains that its per capita income continues to be quite low (US $ 1527 in 2011). Addressing this is perhaps the most visible challenge. Nevertheless, India has a diverse set of factors, domestic as well as external that could drive growth well into the future.

India contributes positively to global growth by being a net importer of goods and services, creating demand for the rest of the world’s output and absorbing some of the excess capital scouring the world, looking for avenues fo profitable deployment. But an even more positive contribution would be for India to grow its own economy more robustly. That means focusing on investment, diverting scarce public funds away from non – merit subsidies – those on fuels and fertilizers. India has to invest massively in its physical and social infrastructure to be able to offer jobs and rising incomes to the tens of millions of young people who ion  the workfare every year. Failure to think long – term known would snow in India the seeds of the kind of crisis that Greece and the rest of the world today grapple with.

G – 20 agenda in 2012: Mexico has since taken over presidency of the G-20 after the Cannes Summit held in November 2011 and released a strategic vision of the G – 20 Agenda spelling out the following priorities.

1.       Economic stabilization and structural reforms as foundation of growth and employment.

2.       Strengthening the financial system and fostering financial inclusion to promote growth.

3.       Improving the international financial architecture in an interconnected world.

4.       Enhancing food security and addressing commodity price volatility.

5.       Promoting sustainable development and green growth in the fight against climate change.

  At the G-20 meet held to june2012 on the sidelines of Rio summit, India committed to US 10 million dollar assistance to the IMF which will not be aid but in the form of India buying IMF bonds. Other BRIC countries pledged assistance as part of G-20- members ‘commitment made in 2010 to increase IMF’s lending base.