Brickwork Finance Academy announces session on Public Finance - Fiscal and Monetary Policies in India & US- Part II, at its campus in Kalena Agrahara, Bannerghatta Road, on Saturday, September 8, 2012 at 9.30am.
The session would look at the fiscal and monetary policies of both India and US with reference to the present economic conditions.
While no one doubts the long term growth story of India, the present seems precarious. The uncertainties in the Indian political parties, fiscal deficits of governments, inadequate penetration of banking system, uncomfortable level of inflation have made decision making difficult. While the country has undertaken many reforms in the financial sector, reforms in the real sector have been lacking. This has had an impact on the levels of growth in the country. After series of growth rates in 9% range, the country's growth has slowed down to 5% levels. The inflation has been stubbornly high in double digits. The interest rates on bank deposits or long term savings don't offer positive real rates. The real estate prices have been prohibitively expensive for poor and even middle class families. The unemployment scenario is distressing. Both the Union and the State Governments continue with populist schemes and are not tackling problems of critical infrastructure like power, roads and water.
The US too shows political gridlock in cutting budget deficit and faces an election year that can throw up huge challenges for the next President. The US monetary policy with substantial quantitative easing has tripled the Fed's balance sheet, yet the credit growth has not taken off. While the US corporate profits are healthy, the employment growth has not picked up. The economic policy has in the past often focused on the need to prop up banks, by way of record-low interest rates across the developed world or the recent case of providing unlimited liquidity by the European Central Bank. The long-term impact of these policies will be hard to reverse and are difficult to assess.
Another point of view could be that the financial sector has inhibited growth in other areas of the economy. While no one can argue about the fact that banks and venture-capital groups play a vital role in supporting new companies, it is possible that the extremely high rewards in the financial industry have diverted talented people away from other activities that could have helped rich economies to grow more sustainably?
Many researchers are now referring to the western economies as "extractive economies", with their banking sector and public sector being referred to as "extractive elites". The wealth of the financial industry gives it enormous lobbying power, including as contributors to American presidential campaigns. By being "too big to fail", banks ensured that they had to be rescued in 2008. It is not uncommon for political parties to reward their supporters with jobs and benefits that have been funded by the general taxpayer. Public-sector employees, in the developed part of the world have more
generous pension rights than the majority of private-sector workers. Many recipients of social benefits, those dependent on the public purse, in majority, are populations of rich countries. Public-sector unions are also the most vocal in opposing labour-market reforms needed to reduce structural unemployment.
The session is part of promoting financial literacy and discussions amongst interested professionals. The session is short and expected to be over by 10.30 am.