Economic Highlights
New Delhi, 11 July,
2016
Europe Falls
LESSONS FOR INDIA
By Shivaji Sarkar
India needs to
be cautious. Whereby, it needs to prepare for a futuristic change in economic,
trade and diplomatic policy. True, this might appear far-fetched, but Brexit
could mark the beginning of the fall of the European Union and collapse of the Euro.
Notably,
it might also be the reprocessing, if not undoing, of globalization which the
late UK Prime Minister Margaret Thatcher had projected as the TINA ( there is
no alternative) factor, when the Soviet Union started collapsing in 1980s.
Undoubtedly,
this holds important lessons for India whereby it should desist from
becoming a bureaucracy-oriented democracy. See how Europe today is revolting
against the Brussels
bureaucracy, which is imposing rules and laws, on democratically elected Governments.
Britain’s
exit is the first major onslaught on that process.
Consequently,
New Delhi needs
to rethink about the Goods and Services Tax (GST). Instead it should have a
uniform tax rate. The GST empowers the Central tax bureaucracy, weakens the States
and is likely to create a convulsive situation. Whereby, the Central system is
likely to overwhelmingly create a situation, leading to an increase in tax
oppression.
Despite Prime
Minister Modi and his Finance Minister Jaitley repeatedly calling on the tax
bureaucracy to behave in a civil manner, taxmen are sending notices to even virtual
non-earners (or very low earners) thereby building up resentment.
Moreover,
with GST, the bureaucratic net widens wherein many babus in State Governments are likely to lose their jobs, leading
to discontent. Resulting in political leaders in States having to take the
brunt which might lead to an implosive situation – almost similar to what is
happening in Euro-zone.
As it
stands, the bureaucracy rarely listens to sane advice. Instead, it thrives on
stringent impractical rules, which helps them in rent seeking. India needs to be
wary of this before allowing the Central taxman to rule the States.
Especially
against the backdrop of Europe being the laboratory for studying failures of a
stringent monolithic system as opposed to diversity signified by India. As everyone now acknowledges, the Euro
has been a disaster. Remember, this economic catastrophe was imposed on the
people of Europe in order to achieve the central objective of the EU and to
pander to the French establishment's view of what was in France's
national interest.
Interestingly, a Pew research survey
in February-March found that a plurality of voters in France, Italy,
Germany and Netherlands
want the EU to return some of its powers to national Governments. Hungary is
planning to hold a referendum.
Importantly, the key question to
arise from this episode is about what might happen in the future. The euro is
not an isolated occurrence. It followed other crazy decisions, including the Common
Agricultural Policy and the Schengen passport-free travel zone.
Undeniably, by giving free rein, who
knows what monstrosities the Brussels elites
will yet unleash upon the people of Europe? It
wants a common pension policy and tax harmonization, which is not to the liking
of most EU countries.
In fact, not only has it
impoverished the countries of southern Europe, with huge numbers of people
unemployed but it has also allowed Germany to run an enormous current
account surplus, amounting to over 8 per cent of GDP and obliging other
countries to run corresponding deficits.
Pertinently, the unemployment rate
in Greece and Spain
now hovers around 25 per cent, with youth unemployment over 50 per cent. Add to
this, all EU members are subjected to heavy austerity doses witnessing
a steep rise in the number of people living below the poverty line.
Clearly, the recent European Central
Bank (ECB) announcement of “quantitative easing” — a monetary sleight-of-hand
to pump money into the Euro zone — is too little, too late.
Alas, the major principle of
European integration is on the reversal. Instead of Eastern and Central Europe catching up with the rest of the EU,
pockets of the “West” have begun to fall behind the “East.” For example, the
GDP per capita of Greece has
slipped below that of Slovenia
and, when measured in terms of purchasing power, even Slovakia, both
former Communist countries.
Asserted a former Belgian member of
Parliament now at the London School of Economics Paul De Grauwe, “In many
countries the perception is that national Governments are powerless and that
there is nothing at the European level to address problems. Both Europe and national Governments lose legitimacy.”
It is a terse statement. India needs to
listen.
Unfortunately, the European project
is teetering. Growth is anaemic at best and socio-economic inequality
is on the rise. The countries of Eastern and Central Europe, even
relatively successful Poland
have failed to bridge the income gap with the richer half of the Continent. And
the highly indebted periphery is in revolt.
Politically, the centre might not
hold and things seem to be falling apart. From the left, Parties like Syria in Greece are challenging the EU’s
prescriptions of austerity. From the right, Euro skeptic Parties are taking aim
at the entire quasi-federal model. Racism and xenophobia are gaining ever more
adherents, even in previously placid regions like Scandinavia.
Besides, the standard of living in Hungary, 25 years after the fall of Communism,
remains approximately half that of neighboring Austria. Similarly, it took Romania 14
years to regain the GDP it had in 1989 and yet it remains stuck at the bottom
of the EU. Poland, Slovakia and Hungary
all remain economically far behind Austria.
Thus, it is a Continent of severe
disparity. Many others, Sweden,
Denmark and Ireland too are
unhappy.
Additionally, the EU sanctions on Russia had a
boomerang effect on itself whereby it took too much for granted. As things
stand Brussels autocratic functioning has led to the resentment, which now might
turn to even a revolt, among the unwilling, who do not want to have free
movement of people or labour and an unmanageable currency festered by ECB.
In sum, India is on the threshold of
building a new economy. The EU remains one of its biggest export destinations.
A fall or splintering of Europe or weakening of Brussels
would lead New Delhi
to rethink its strategies. Its cost on diplomacy might increase.
True, it is too early to predict but
India has to start the
process of building bridges with individual countries in Europe.
Happily Prime Minister Modi has partially started this process with his foreign
visits.
But there
is no gainsaying, European countries or the US with Presidential candidate Donald
Trump want to build walls. India
has to learn to penetrate this. . One hopes the European dream does not become
a nightmare. However, India
must be ready to accept the impending changes in a robust way to take the
advantage of emerging situations. ---- INFA
(Copyright, India News and Feature Alliance)
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