Sunday, May 10, 2015

India as the world's next big trading bloc; Why China slowdown matters; EU to propose migrant quotas

1 India as the world’s next big trading bloc (Dawn) A new Common market is being formed. It has a bigger economy than the whole of sub-Saharan Africa, more states than the European Union has members, and twice the population of North America. It’s called India.

For more than six decades since independence, India’s 29 states have operated almost as separate countries. They set their own taxes, charged import duties on goods from neighbouring states, had their own politics, culture and even languages. Prime Minister Narendra Modi is trying to change that, with a single goods-and-services tax by next April, leaning on state governments to amend labyrinthine labour and land laws, and revamping the Soviet-style Planning Commission.

Given the size of India’s states and a predicted growth rate of at least 7.5 per cent over the next five years, the potential benefits of integration for investors are huge. In population terms, Uttar Pradesh is equivalent to Brazil, Maharashtra would be Mexico, while Bihar is on par with the Philippines. Telangana, India’s 12th-largest state, is comparable to Canada.

Should Modi succeed in forging a single market, the biggest winners could be some of the poorest states. Like the boom for EU newcomers from Central Europe in 2004, growth in laggard states may consistently outpace the national average as India’s lopsided economy begins to balance out.

The infighting, corruption and endless regulations have tarnished the country’s image for investors. India fell to 71st from 60th among 144 nations in the World Economic Forum’s Global Competitiveness Index 2014/15, behind Rwanda and Romania. On the World Bank’s latest Ease of Doing Business Index, India’s position worsened to 142nd out of 189.


2 Why China slowdown matters (Andrew Walker on BBC) After a long period of stunning growth, China's economy is now slowing. The economy grew at an average rate of 10% a year for the three decades up to 2010. Last year, the Chinese economy grew 7.4%. The International Monetary Fund (IMF)'s most recent forecast is 6.8% for this year and 6.3% for 2016.

The government wanted a slowdown, and has encouraged it because there are long-term forces that mean it was inevitable sooner or later. China's very fast economic growth was based on some factors that could not last forever. Very high levels of investment have been part of the story. High investment rates have been important factors in other Asian economic success stories. But you can have too much of a good thing.

So the government's aim is to get spending by Chinese consumers to take a bigger role in driving the economy, and it has the support of, for example, the IMF in that. Exports of cheaply made goods have been central to China's stunning growth. Since 2011, the export growth figures have been more modest, slowing to 6.4% last year.

China has an important role as a buyer of oil and other commodities, and the slowdown has been a factor in the decline in the prices of those goods. So even if China's more moderate growth is a good thing in the long term, it has had an adverse impact on some countries, especially commodity exporters.

There is also the possibility of financial instability spreading from China. Depending on how you crunch the numbers, China’s economy is either the biggest or second biggest on the planet. China's slowdown will be a major issue hanging over the big international economic policy events of the year: the G20 summit in Turkey in November and the annual meetings of the IMF in October, this year being held in Peru.


3 EU to propose migrant quotas (Straits Times) The executive body of the European Union will propose that countries share responsibility for housing thousands of refugees arriving in Europe from across the Mediterranean.

European Commission president Jean-Claude Juncker will propose a "mandatory migrant quota system" under which the EU's 28 member states will share responsibility for migrants during times of emergency.

"To ensure a fair and balanced participation of all member states to this common effort... the EU needs a permanent system for sharing the responsibility for large numbers of refugees and asylum seekers among member states," the proposal reads, it is reported. The number of refugees sent to each country would be decided according to a "redistribution key" based on GDP, population size, unemployment rate and past numbers of asylum seekers.

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