FREE TRADE REGIME - A TRAP

Free trade regime – what is advocated by the developed countries in WTO; the developing nations are not agreed to that for several reasons. However, let us see how the worked for other countries in the globe who accepted it to the letters. Let us take very recent example of Ghana. Ghana implemented the “liberalized economic system” in the early 8s, at least 10 years before India. The country was projected by the World Bank and the IMF as success story of Africa. But the reality was exactly otherwise. The liberalized economy in Ghana has ruined its agriculture and at the same time failed to boost any substantial manufacturing industries. The mantra of consumerism has failed there too. The poor consumers in Ghana were denied the price stability and pushed to further predicament. The free trade meant lack of price stability for the people of Ghana, since the government has bowed out of price-setting to make way for the market. Likewise the poor producers face highly uncertain prices, they sell cheap in the harvest season and buy the same back for their own consumption later in the year when the price have risen. The situation has worsened further due to cheap imports killing the local industries or produces. The local traders find that since markets have been liberalized, it is not worth buying from farmers in remote districts, as whatever they pay will be undercut by cheap imports. Even local companies that might be expected to enjoy the freedom to source from the cheapest place, argue that they would rather have long-term relationships with local suppliers, if those suppliers could be helped to increase their productivity and meet local demand. All these groups want some form of protection from the uncertainty and volatility of the market. Poor producers want sell their goods first, before markets are flooded with cheap imports. Poor consumers want the government to set up storage systems, so that prices remain more stable throughout the year. Traders want a market where local products can hope to compete with imports. Moreover, local companies want the local industries should be supported and protected to some extent to face the competition form cheap imports. It is always favored to buy locally than imports for price stability. This is the experience of “Free Trade Regime”.

POOR INDIA; POORER WORLD !

Everyday those of us belong to third world or developing countries like India, Pakistan, China, Brazil, Russia or any countries in the continent of Africa come across of poor. In many of these countries they are found, living in shanties, ghettos either sitting idle with a vacant look or working hard to keep their soul with body. Since this I write for my blog, presumably the readers do have access to internet, so for all of us it is difficult to imagine how it is to earn only $1 or $1.25 per day or how to live with that paltry sum of money! Believe it, as per a recent World Bank report no less than 723 million people are just pulling on with that kind of earning, there are more who even do not earn that amount! Their plight is unimaginable. There have been big successes I the fight to overcoming extreme poverty but economic estimates show that there are now more poor people around the world than it was thought previously, the World Bank said in study recently. The revised estimates suggest for India, the percentage of people living below $1.25 a day decreased from 60 per cent in 1981 to 42 per cent in 2005. Even at a dollar a day (2005prices), poverty in India had declined from 42 per cent to 24 per cent over the same period, the multilateral bank said in a news paper, “The developing world is poorer than we thought but no less successful in the fight against poverty”.

As per the study since 1981, it is found that 1.4 billion people (one in four) in the developing world were living below $1.25 a day in 2005, down from 1.9 billion (one in two) in 1981. It reflects improvements in internationally comparable price data, offer a much more accurate picture of the cost of living in developing countries and set a new poverty line of $1.25 a day. These are based on the results of the 2005 International Comparison Program (ICP), released early this year. The World Bank study estimated India`s purchasing power parity rate in 2005 to be 40 per cent of the market exchange rate, up from 23 per cent in the 1993 PPP. This results poverty levels measured against an international benchmark are higher in the latest global estimates. Both the parameters a dollar a day and $1.25 per day indicate that India has made steady progress against poverty since the 1980s. It measures poverty rate declining at the rate of 1 percentage point per year.
The estimated poverty rates in the country correspond to 267 million people living below a dollar a day in 2005, down from 296 million in 1981. However, the number of poor under $1.25 a day has increased from 421 million in 1981 to 456 million in 2005. This indicates that even while the number of people living on less than a dollar a day has come down, there are a large number of people living just above this line of deprivation and their numbers are not falling. The high GDP growth in India has reduced poverty. Now India should look into the area of inequalities where poor are not able to participate in the growth precess.

STOCK MARKET TREND

Indian stock market after its long journey through bull phase, according to some experts, is entering its tryst with bears with mid to long term association. “We are likely to see a sideways movement for the next one year at least” says Edelweiss Capital Chairman and managing director Rashesh Shah, adding that the next 3-4 months could be tough. “There are no positive triggers in sight. Inflation and crude oil prices are still not under control, and corporate earnings are set to plateau over the next couple of quarters” he added.
Bears seem to be tightening their grip over the stock prices, as evident in the recent trend and technical analysis of stock indices, and they are forwarding in for the kill. The micro as well as macro condition are in their favor. On the macro front inflation escalated to a new 16-years high to 12.63%, creating expectation that the interest rate is due for a further hike. The global situation is more gloomy since the experts feel that worst of sub-prime crisis is yet to be unfolded. Given to this situation market watchers expect another round of sell-off in the next few days. Small investors or day traders should exercise extreme caution in taking the investment decision. It is suggested the ETFs which are yellow metal based are better options, since their price is down and may come down further. If that does not happen still gold is gold and safe in current situation. Bank interest rate going higher, investors may look for bank deposits as well, since for parking the funds till things change for better in liquid merits preference.

BANKING AND TRADE UNIONS IN INDIA

In India, banking industries are taking a paradigm change to compete with the global and private banks playing here. In Indian nationalize banking s scenario the White elephant State Bank of India, with its largest network and manpower sharing the market share much lesser than emerging private banks like ICICI Banks, or HDFC Banks. Though the nationalize banks are off late trying to shake off their slumber but as it seems unless the dead woods are out it is difficult to fall in line. On 18th August the Officer`s Union of State Bank of India and its other associate banks have given a strike call, protesting against merger. The most surprising part of it that most the staff members of the Associated Banks are in favor of merger with State Bank of India, since that will accrue them lot of benefits, like pension as 3rd benefits, higher pay scale , local transfer et al. So how come the Unions have given strike call? The union leaders, who are primary from political parties and most of them are retired long ago from banks, feel that it will devalue them and deprive them of their privilege status. There are seven associate banks of State Bank of India, out of them on State Bank of Saurasthra is merged already and others are likely to follow the suit. Imagine, all these seven banks have seven trade union leaders and seven MDs, CGMs and alike. By the merger their posts are likely to be erased and that seems their problem. Their higher managements of these banks are not coming into the fore front but must be encouraging the unions to go ahead with their agitation. Longer they last, better for them, they too can cling to their chair and enjoy the special privilege offered by their respective banks.
This is the first time in the history of Trade Unions in Banking industries, where 50 per cent of officers declared openly that they are in favor of merger and not going to participate in the strike on 18th august. Next follows “BHARAT BANDH”, by several trade unions, among them Banking Trade Unions are in the fore front, with their demand for dropping the merger proposal, protesting against the high inflation and many more. These unions are workers union, having huge membership and are well in a position to paralyze the life. But first time ever it is observed that these Unions are under pressure knowing well that their members are not with them with their mind and may revolt at any time. It is well known that inflation merits more production to be checked, never a strike that results huge loss in production can address it. It is high time that the union leaders should pull up their socks and realize that their members are no more the sheep of Orwell’s “Animal Farm”, and not going to buzz to their tune, they can judge themselves.

GOLD VS LIQUID GOLD

Contrary to the apprehension global oil price instead of going higher is coming down. The reason being he demand supply scenario is changed as the experts believe and off course the speculative forces are receding as well. But there is another story cooking up behind the curtain. It is reported “ a powerful relationship measured by gold/oil ratio (GOR) --- has been a trigger for the sell-off in oil contracts by investors, mainly global hedge funds, on overseas exchanges”—by informed sources. It is believed that in addition to selling oil contracts, these investors have created long positions in gold. It is presumed that yellow metal is relatively inexpensive vis-a-vis the black gold. Most of the analysts think that gold may outperform oil in the near future. This is because yellow metal is considered a hedge against higher inflation, what is driven by higher oil price. Sean Darby, the Asia Pacific strategist of Nomura International says “ It (GOR) normally represents good tool for investors to establish the relative of commodities. It clearly implies buy gold and sell oil”. This subscribes to the same theory. It is observed that earlier this calendar year the GOR was calculated by dividing gold price per ounce to oil price per barrel. That was in the range of 9 to 11.1 earlier but now has come down to 6.8:1 of late. The ration rose to 7.5:1 on early this week from 6.3:1 mid-June. Historically, it is observed that many investors have been buying gold when the GOR is below 10 barrel/ounce. So far in 2008, crude oil has risen 30% roughly at Nymex exchange, while gold has gained only 11% in the same period. Obviously the investors feel that oil due to lack of demand might have lost the steam to rise further. So, sell oil and buy gold what is always a safe heaven and hedge against inflation. So, the small investor may look for investment opportunity in gold funds or the funds that invest in gold mines and allied industries.