The economic might of the most powerful nation of the world, the United States of America, was humbled during the recent global financial crisis. Long term sustainability of the financial models and the policies, which the country has been practising for quite some time, raised more questions than answers. It raised serious doubt on the American model of the free market economy, which in not too distant past, the entire world, by and large, used to consider as the right foot steps to follow for economic progress of any nation.

‘State of the Union address 2010’ of President Obama:

Today while managing the newer type of economic crisis with the ‘pump priming’ strategy, bolstered with direct state interventions of various kind, the nightmare that has started haunting the US President is the possible emergence of China and India as the powerful economic super powers of the world, leaving the mighty US far behind. In fact, in his ‘State of the Union address 2010’, the US president shared this fear with his nation.

A new equation in the process of globalization:

Has this crisis ushered in the dawn of a new era with a new equation in globalization process? Has it not proved that regulated and calibrated reform measures by the financial institutions, like what is happening in India, are much less fragile than US model of open market free for all capitalism?

The European Union (EU) in general which Tony Blair, the former Prime Minister of the UK once clarified during the Iraq war, is not the ‘poodle’ of the US, has proved itself to be exactly so, even during this economic crisis. The financial catastrophe of the US creation has vindicated to the global community beyond doubt that it is not the western world in general and the US in particular which will hold the key of progress of the global economy in the years to come by.

The balance of the global economy is now tilting to the East:

The balance of the global economic power is now tilting from the West to the East… and that too, not very slowly. As someone said very aptly, “Globalization is not Americanization”. The global community seems to have realized this truth, by now.

The new emerging economic world order:

Emerging economies of the world came as a savior to address this global crisis. G20 and not the G8 countries, became more relevant in the new world order.

The Outlook of 2010 is no brighter and does not stimulate the business confidence with increasing debt and unemployment levels in both the US and the EU.

The new emerging economic world order will witness more financial regulations and stricter state interventions in future. Even in a country like the USA, which used to believe in free market economy, one now witnesses significant state interventions and protectionists’ mindset while dealing with existing business process outsourcing initiatives, especially to countries like India.

India is less impacted:

Compared to the developed world in the West, India has been relatively less impacted by the financial meltdown initiated in 2008, mainly because of the following reasons:

1. Domestic demand is the key factor for the growth story of India

2. Reliance on foreign currency savings is low

3. Robust regulatory measures on investments abroad by the Indian nationals

4. Regulatory control on speculative financial transactions

5. Robust financial policy measures to ensure financial stability of the nation

In this context, Mr. Montek Singh Ahluwalia, the Deputy Chairman of the Planning Commission said:

“The global financial turmoil will not have any significant impact on the country’s financial system as India is not exposed to the new and innovative financial instruments that triggered the meltdown. We have not been as exposed to these new and innovative instruments, which have been the source of financial distress internationally… So the direct impact on the Indian financial system is not going to be significant at all.”

Is American model of ‘free market economy’ a sustainable economic pathway?

This particular global financial crisis has raised the important question whether the American model of ‘free market economy’, which considers the market as the sole determinant of financial progress, is a sustainable economic pathway or not.

The elite G8 group of countries was not very concerned about the needs of the rest of the world:

The G8 group of countries comprising of seven of the world’s leading elite group of industrialized nations, France, Germany, Italy, Japan, UK, US, Canada and Russia, many believe, just represent the interest of the industrialized nations and not quite concerned with the needs of the rest of the world. Fast growing developing economies like India and China and Latin American and African countries do not have any representation in this elite world. It is not just a sheer coincidence that most of the G8 countries, if not all, have been badly impacted by the global economic downturn.

The G20 group of countries came as a savior:

In April 2009 the leaders of the G20 group of countries, which include India, in their London meet came to the rescue and pledged to bring the world economy out of recession. The pledges were as follows:

1. Help countries fight the economic crisis with U.S $1.1 trillion deal

2. Provide stimulus measures of a total of U.S $5 trillion to boost their own economies

3. Reach an agreement on shifting IMF voting power to under-represented countries.

4. Regulate hedge funds

5. Curb Tax havens

6. Bring restrictions on banking bonuses

Most of these pledges, except perhaps point 4, have since then either fully or partly been met. The global financial crisis has now been partly contained. However, the G8 group of countries is still struggling to fully grapple with this economic downturn.

Conclusion:

Despite all these, the overall economic growth of India is still quite encouraging with commensurate significant growth across almost all industries. At the very beginning of 2010, the government has started actively considering to prune its fiscal stimulus package extended to the industry, in a calibrated way.

India is marching ahead towards globalization process, albeit differently, realizing perhaps that “Globalization is not Americanization”.

By Tapan Ray

Disclaimer: The views/opinions expressed in this article are entirely my own, written in my individual and personal capacity. I do not represent any other person or organization for this opinion.