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The Financial Express

When money doesn\'t talk

Mahmudur Rahman | Published: March 02, 2016 00:33:32 | Updated: October 25, 2017 02:50:27


When money doesn\'t talk


India is the fastest growing economy in the world with growth prospects phenomenal. There is an 'if' though. The country needs major investments, especially in manufacturing and infrastructure, much of which was being wooed by Premier Narendra Modi during his impressive road shows. Backed by certain reforms and cutting red tape, Mr. Modi also pushed the famous Make In India slogan. Two years into his tenure the magic seems to be rubbing off. A slowing Global Economy, slower pace of reforms and a certain unsureness have combined to dissuade or at least make reluctant the expected inflows of investment. The four billion dollars that came in last year were comparatively low for a country of its size. But the government continues to have enough faith so as to pitch the bulk of its budget towards the farmers and the rural poor with little or nothing aimed at the manufacturing sector.
Nor is this surprising. Europe in deflation, twenty-five per cent world gross domestic product (GDP) contributing economies in negative bank rates and the US being a better return for investment aren't helping. And the scenario is the same for all countries seeking investments. China is to cut some 1.8 million jobs from the commodity mining area in the next two years as it tries to reduce stocks of coal in particular. Russia is already flinching in terms of balancing its budget in the wake of rock-bottom fuel prices and the cost of a war it never wanted. And if the big guns are in crises, developing nations have severe headaches on way. The reluctance of the Group of Twenty (G20) to announce new stimuli, even though China and the European Union (EU) have been letting the message go out, is creating significant unease. The upshot is that investors, burnt by the Chinese equity market and the oil bump are keeping their money in their pockets. Many will no doubt want to wait to see how dwindling economies such as Nigeria, Venezuela, Brazil cope before deciding on where to pitch.
The fact that developing countries offer more in volume rather than value is another factor that funding banks would be concerned with. Traditionally volume and value are largely a balance but when economies go south, inflation and deflation hit simultaneously, balance becomes difficult .Middle-eastern countries are drawing in their investments in trying to address deficits; China's envious three trillion dollar foreign reserves are being eaten into rapidly - neither are positive signs. With banks now beginning to charge rather than pay for deposits, it has to be a matter of time before these must be utilised or end up as losing investments themselves.
(The writer may be reached at mahmudrahman@gmail.com)

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