<div><em>The BJP policy mavens have to be alert to the clear and present dangers that an economic downturn across the world triggered by China could lead to, writes <strong>Sandeep Bamzai</strong></em><br><br><br>As global headwinds rise and fires burn in Greece in Europe and China in Asia, even as the US Fed talks about a rate hike, India needs to start building a moat around itself and preparing for all eventualities. Friday morning's J M Financial India Strategy report paints a dismal picture for India. It says, "The recent devaluation of Yuan by China has led to a broad weakening of all Asian currencies including Indian Rupee (2.3 per cent vs USD). Exports from India excluding crude products has been weak (-5.8 per cent YoY in Apr-July) while imports ex. crude has been rising(+2.3 per cent YoY in Apr-July) exacerbating the trade deficit. In this back drop, there have been fears that yuan devaluation will further hurt exports and increase imports from China. While there is some credence to this argument, currency alone would not affect exports, in our opinion. While there are reasons (declining CPI inflation, currency) for an early rate cut, currency is not the key motivator and that a rate cut could very likely be preceded by currency stabilizing measures such as increasing FPI (foreign portfolio investment) limits in Gsecs (govt securities)."</div><div> </div><div>Yes unwinding of crude and commodity prices is great news for India, but other economic indicators are not shaping up adequately. The shake and rattle felt in global equity markets including India over the last few days has shaken India out of its complacency and if I may be bold enough to add stupor. If China were to continue to devalue its currency, the deleterious impact on India's currency will be far reaching. It is clear that the Chinese regime will stop at nothing to stave off the financial crisis threatening to engulf it. </div><div> </div><div><em>Business Insider </em>deciphering the crisis in China wrote the other day, "The reality is that China is in the midst of what may be its most serious crisis since the days of Deng Xiaoping. And the model of government and economy Deng put in place is no longer effective at managing China, much less shifting it in a new direction...But the relative calmness on the surface belies disturbing deeper currents. The dark secret of consensus rule was that, while appearing to provide stability, by the late 2000s it was doing more to perpetuate underlying structural problems that could delay or even derail actual reforms or economic evolution. The lack of radical shifts and turns, the avoidance of major recessions and the ability to defer significant but potentially destabilizing reforms made China look like an unstoppable juggernaut...This is not to say China is on the verge of collapse, that the government and Party is about to fracture along internecine battle lines, or that economic reform is simply impossible in the face of entrenched interests. But none of these are out of the question...China has entered a stage of the uncertain...The transitory period is the most chaotic, the most fragile, and that is where China sits right now. "</div><div> </div><div>China has entered an uncertain stage and as <em>Business Insider </em>rightly points out a quantum surge in threat analysis for neighbouring India and other nations is imminent. Even as India grapples with the new bush fires, it has its own perils to deal with. The strife over One Rank One Pension scheme is a ticking time bomb which can cause financial havoc and set the clock back on the fiscal deficit targets. The off the books OROP is the right thing to do, no question about it for our veterans deserve every extra rupee, but the fiscal manoeuvrability at this stage is extremely limited. Much like P Chidamabaram's Rs 71,400 farm loan waiver, it has the potentiality to leave the fiscal regime in tatters. PM Modi knows this just as both Arun Jaitley and his deputy Jayant Sinha understand the financial implications of such a monumental decision. Implementing OROP will cost the government an estimated Rs 8300 crore annually and the finance ministry has to decide on this issue very soon for the pressure from the ex-servicemen is immense and intense. OROP is expected to benefit 25 lakh ex-servicemen.</div><div> </div><div>The rising external dangers from China and buffeting crises at home have to be navigated. India insulated itself adequately during the 1997 east Asian contagion, the dot com bust of 2000 and of course the global meltdown in 2008. The BJP has wasted 15 months obsessing over parliamentary obstructionism. In UPA's last budget, a meagre Rs 500 crore was allocated for OROP. But the BJP and PM Modi made this an election issue. In fact, one of Modi's earliest big rallies was in Rewari, a strong hold of armed forces veterans and he made a promise to deliver OROP there. Over promise versus delivery has become Modi dispensation's biggest bugbear. Incidentally the Supreme Court had ordered OROP roll out six years ago. In February this year, it politely reminded the Govt that nothing has moved on the front: Pension is not a bounty nor a matter of grace depending on the sweet will of the employer.</div><div> </div><div>The BJP needs to fortify itself adequately against external and internal threats, policy mavens have to be alert to the clear and present dangers that an economic downturn across the world triggered by China could lead to. The economic environment is no longer mono chrome, there are hidden dangers lurking everywhere. Tread softly, for you may tread on our dreams. </div><div> </div>
