Aby The Liberal

Dmitri July 12th, 2007

In the past couple of years the we have seen a decline in the influence of United States as a global superpower, particularly in Europe and East Asia. The military exuberance of the US after the collapse of Soviet Union led to a heightened global paranoia against a perceived US imperialism. Thus began a race among several emerging nations to fill the gap of a balancing superpower. Russia fell behind due to its economic problems, as the capitalist ’shock therapy’ didn’t work as well as American analysts predicted. The European Union also seems to be going nowhere after a series of reorganisations and also lack of unified military. This has brought the focus on two emerging Asian countries - India and China.

India is quite often in the reports of global political analysts and media specialists [eg. Newsweek] as the next possible superpower on a global level. India has significant political influence in South Asia due to its its position as a regional economic giant, a large country with a billion people, a stable military and a rich cultural heritage spanning thousands of years into the past. Yet it takes much more than that to stand up to, or alongside a superpower. A nation needs to be a global military might, backing by a strong economy and political influence to be a superpower. On this note, it would be interesting to look into the realities and assess India’s position on the global economic scale.

The largest slum in Asia at the heart of India’s financial capital Mumbai; millions of poor in India live in such conditions.

After the liberalisation of its economy in 1991, followed with the opening up of its markets to global players, India went on a fast track economic boom with an 8-9% GDP growth per year. This was largely possible because of a vast population with a large middle class market, and a huge manpower of cheap skilled workers in the IT and service industry catering mainly to the corporate back offices of US and UK. Yet despite the rosy picture, the beneficiary of this economic growth remains a meagre 10% of India’s 1 billion population earning 33% of India’s national income [Source]. The purchasing power of Indians remains at a fraction of that of EU or USA, at an annual per capita GDP (PPP) of approximately US $3800 (2006). The large GDP that India boasts of, $1.2 trillion looks impressive on a global scale but diminishes when its huge population is taken into account. Over 79.9% of Indians live on less than a $2 a day; among them 34.7% live on less than a dollar a day, according to the data compiled by UN Human Development Report 2006.

In the area of education, the large pool of IT workers and technologists can’t overshadow the fact that India still remains one of the most illiterate countries in the developing world. With 39% of the population being unable to read and write, this represents about 400 million people - more than the total population of US, Australia and Canada put together. Sparing a few national universities of repute in the major urban areas, the majority of Indian universities and colleges fail to produce skilled professionals which could be employable in intellectually demanding fields like research, development and manufacturing. The quality of school education in the public sector remains woefully low due to lack of teachers, classrooms, books and basic educational amenities. The famed English speaking Indians are mainly limited to the private school educated economic elite which represents less than 5% of the of Indians, often termed as ‘middle class’.

With a over 37% of the population being illiterate and living under a dollar a day, India still remains an economically third world country; hardly a superpower or a global economic power. At the current trends it would take at least 30 years for India to have one third the purchasing power of the developed nations (provided that the current growth is sustained). By the time India catches up with the present living standards of developed nations, there will be too many players like Europe, Russia, China, Japan, Brazil and United States that the term ‘Superpower’ will become obsolete to be replaced by multiple ‘powers’.

• Economy , Ideology , Internationalism , World Politics
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Aby June 25th, 2007

The exchange rate of a Euro has been pegged 1.3415 US Dollars as of today, 25th of June 2007. While we have been witnessing the gradual decline of the dollar against the Euro and other global currencies since the US war on Iraq on 2003, the world is still wondering if the Dollar loses out to Euro a a global transaction medium for trade and reserves.

The Predators - An artist’s rendition of the global Dollar vs Euro War

Developing countries like China, Japan, etc. try to keep the dollar high against their currency to maintain competitiveness in global trade and export. It helps them provide services and products at a lower rate than the high exchange rate nations could. On another side, European Union’s Central Bank is somewhat reluctant to let the Euro rise too fast as it could reduce their export business and drag down the fast growing European economy. Other countries are pitting to keep the dollar high because a reduction of dollar would reduce their capital assets which are in US Dollar reserves. These factors put the dollar at a critical juncture as many countries and continents have vested interests in keeping the rate of dollar at a high.

Euro’s main problem lately is the economic diversity of the European Union. While we have wealthy countries in Western Europe like France, Germany and Netherlands; the Eastern Europe has mostly poor countries like Romania, Estonia, etc. The inflation and price index vary widely between different countries which puts Euro as a one-size-fits-all currency in a financially weak spot. In the area of economic growth there have been issues as well, with Germany having large surpluses of Euro due to its economic growth while France and Spain are growing at a snail’s pace despite their stable economies.

The dollar is not free of problems either. The long drawn war in Iraq had taken its toll on the US economy with recession of the dollar against the globally uniform ‘Gold Standard’. A lot of countries like those in West Asia and Europe are pulling out their dollar reserves and moving to Euro. Investors are now converting to Euro bonds from the Dollar at a slow but steady rate. The Euro is rising against the Dollar in foreign exchange rates despite all the ‘push’ for the Dollar. On April 27, 2007 the value of a Euro sky-rocketed to a high of 1.3688 Dollars. According to IMF’s COFER (Currency Composition of Official Foreign Exchange Reserves) data, the share of Euro in global reserves has increased from 14% in the first quarter of 1999 to 17.08% in the 4th quarter of 2006. The share of US dollar dropped from 54% to 42.88% in the same period.

It seems like in the long run, the might of the Euro could eat away at the dollar - bye and bye like Mozilla Firefox hurt the Internet Explorer browser market. Or perhaps, better still the world will have two major currency options to choose from much like diversifying stock options.

Resources and Links
IMF’s COFER Database of Foreign Exchange Reserves
Dollar Hits Record Low vs Euro - CNN

• Business And Finance , Economy
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