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Two percent global GDP lost to corruption every year

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Lima: Around $1-1.5 trillion or around two percent of global GDP, are lost to corruption every year, president of the Natural Resource Governance Institute (NRGI) has said.

Speaking at a panel on integrity in public governance during the World Bank Group and International Monetary Fund annual meeting on Sunday, Daniel Kaufmann, president of (NRGI), presented the statistic, result of a study by the NRGI, an independent, non-profit organisation based in New York.

However, according to Kaufmann, the figure is only the direct costs of corruption as it does not factor in the opportunities lost on innovation and productivity, Xinhua news agency reported.

“The mis-allocation of talent away from productive activities and innovation” has a costlier impact on countries suffering from corruption in the long term.

A country that addresses corruption and significantly improves rule of law can expect a huge increase in per capita income in the long run, the study showed.

It will also see similar gains in reducing infant mortality and improving education, said Kaufmann.

Countries with better control of corruption averaged a five percent improvement in their budget deficits or surplus in the long term, he said.

Based on the findings of the study, Kaufmann called for a new definition of corruption.

Believing that corruption is no longer a simple transaction between two parties, he called it a “tax on the poor and, increasingly, the middle class… leading to higher levels of inequality”.

“Corruption has shifted to large colluding networks, such as FIFA. These networks shape the rules of the game, institutions, policies and contracts. This is more insidious than petty corruption,” he said.

(IANS)

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Rise of the Indian economy: Awaiting a neo-Hindu rate of growth

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By Gaurav Sharma

Yesterday, India celebrated its 68th year of Independence. From tenderly treading baby steps in the nascent stages of nationhood to galloping briskly towards a greater stake in the global economy, the Indian journey has been a roller-coaster ride.

Monikers such Shining India and the Bright spot highlight the growing economic clout of the country and arouse global interest in India, both as a market and an investment hotspot.

What was once the tedious Hindu rate of growth of 1 per cent in the first three decades following a century of exploitative British colonization has now rocketed into a burgeoning 7 per cent growth trajectory. When the World Bank expects India to top its growth outlook charts for 2015-2016, with the economy growing steadily between 7.5-8.3 per cent, it further cements the India’s rise as an economic power.

How did we traverse the topsy-turvy journey, through the crest and the trough? How did we reach the current state of being?

After Independence, India’s first Prime Minister Jawaharlal Nehru (through the statistician Prasanta Chandra Mahalanobis) undertook a socialist reform of the country. Skeptical of his colonial experience, Nehru adopted a protectionist economic policy, under which development came largely under the ambit of the government. Central planning, regulation and import substitution emerged as the key features of the Five Year Plans based upon the Soviet model.

Nehru’s reply to industrialist JRD Tata, “Never talk to me of profit. It is a dirty word”, emboldens the denigrating and suspicious mindset of politicos towards the private sector prevailing during that time. Industries such as steel mining, insurance among a host of other industries were controlled and run by the public sector.

In 1965, the Green Revolution was ushered in, to facelift the agriculture sector. Use of high yield variety seeds (HYV) and genetically modified (GM) crops not only resulted in India achieving self-reliance in food security but also stealthily brought the problem of income disparity and institutional breakdown to the fore.

Although the Morarji Desai government of 1977 did ease restrictions on the economy by removing price controls and reduction of tax rate, by the end of the decade India was staring itself in the dark pit of external payment crisis. With the disintegration of Soviet Union and a sharp decline in oil prices, India’s balance of payments (BoP) had enlarged to dangerous proportions.

India was forced to borrow a heavy sum of Rs 28,000 crore from the International Monetary Fund (IMF), the largest sum for any developing nation at the time.

In the 1980’s, the Indira Gandhi government was successful in stalling the prospective deterioration underlined in the loan conditions, by unleashing a slew of reform measures such as reducing import duties, delicensing industry and revamping the public sector. Transformation was on it way.

Then in 1991, a breakthrough was achieved by Narasimha Rao while working in tandem with the then finance minister Manmohan Singh. Public monopoly came to an end, interest rates and tariffs were reduced, license raj was quashed and the country was opened up to the world. Globalization, Privatization and Liberalization emerged as the motto of the new dispensation.

The new millennium (particularly the period 2003-2007), saw India touch a high 9 percent growth rate, with Goldman Sachs predicting India to become the third largest economy by 2025.

Despite donning the hat of the new global economic power, India’s fundamentals were tested during the 2008-09 recession. Although it managed to brace through the economic cyclone, in the aftermath of the disaster, India’s growth rate had tumbled down below 5 per cent.

High current account deficit, weak rupee and a sluggish manufacturing sector aggravated the situation. Furthermore, the tapering of quantitative easing in the US meant that foreign investment into the country ebbed. India’s global standing took a hit even as the ease-of-doing-business index ranked at an abysmal 142 out of 189 countries.

Fast track to today. And with the change in political power, things have started changing. With almost 15 years of developmental experience behind his back, Narendra Modi has  promised a slew of reforms aimed at reviving India’s economic muscle.

Critical sectors of the economy have been opened-up to woo foreign investors and to revivify the ailing sectors. FDI in defense has been increased to 100 per cent and insurance FDI limit has spiked up from 26 to 49 per cent.

Not to get fixated with the idea of growth as the sole plank of development, Modi has also vied for social initiatives. This is in line with what Amartya Sen (a notable critic of Modi) believes economics to be; a value of freedom not limited to a utilitarian concept of wealth and income.

On his Independence Day speech, Modi continued with his hawkeye focus on development and boisterously claimed that his government had scaled down the complex labour laws into 4 simplified codes; safety, social security, wage and industrial relations. It will be interesting to see how the grand plan actualizes.

If Kisan Kalyana Yojana ends up as mere rechristening of the agriculture ministry rather than a new scheme, Modi’s credibility will surely take a hit. Dreaming of an entrepreneurial revolution and setting a target of three years for rural electrification plans are ambitious plans indeed. Still, in the midst of the precocious focus on development, the key area of electoral reforms has been left untouched.

This only shows how adept Modi is when it comes to towing the precarious line of economic reforms and social development–of leadership and populism–with much alacrity. If only as a photo-op, critical social issues have not been left sidelined.

Perhaps this how the neo-hindu statesman works. When, and if he walks the talk, can we expect a new neo-Hindu rate of growth?

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IMF appoints new chief economist

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Washington: Christine Lagarde, managing director of the International Monetary Fund (IMF), late on Monday announced the appointment of Maurice Obstfeld as the IMF’s economic counselor and director of the research department.

Obstfeld succeeds Olivier Blanchard. He is expected to begin his work at the fund on September 8, Xinhua news agency reported.

“I am thrilled to have Maurice join us at the fund. His outstanding academic credentials and extensive international experience make him exceptionally well-placed to provide intellectual leadership to the IMF at this important juncture,” Lagarde said in a statement.

“He is known around the globe for his work on international economics and is considered one of the most influential macroeconomists in the world,” she added.

A professor of economics and former chair of the Department of Economics at the University of California, Berkeley, Obstfeld has advised many governments and consulted at central banks all over the world. He is currently a member of US President Barack Obama’s council of economic advisers.

(IANS)

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IMF to lend $506 mn to Pakistan

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Islamabad: As part of a three-year loan programme, the International Monetary Fund (IMF) has given nod to release around $506 million for Pakistan, the state media reported.

In a statement issued in Washington, the IMF said the tranche was released after the board completed the seventh review of Pakistan’s economic performance under Extended Fund Facility (EFF), an IMF lending facility to help members with balance of payments problems.

With the release of the latest tranche, the total amount so far disbursed to Pakistan comes to about $4.05 billion dollars. This will take the country’s foreign exchange reserves to $18.7 billion dollars, Radio Pakistan reported.

(IANS)