A PEEK BACK : YEAR 2014

A PEEK BACK : YEAR 2014
2014 was a landmark year for both the global and the Indian economies. In a striking role reversal between the world’s two largest economies, the US appeared to be rapidly gaining back its mojo and played a key role in boosting the global economic machine, while the Chinese juggernaut appeared to be screeching to a halt.

In India, the year started off with low growth and high inflation. By the time it ends, inflation is low while growth appears to be picking up.

Without ado, here are 10 key economic events that defined the global and Indian economies this year.


Landslide win for BJP in general elections
In a historic mandate, Narendra Modi-led Bhartiya Janata Party coasted to a majority, the first time a party has done this since 1984 (when the Congress swept the polls on a sympathy wave, following Indira Gandhi’s assassination).

The mandate is simple: under Modi’s strong, reformist leadership, voters hope India would create the millions of jobs its young population needs as well as lift the economy from a slump said to be brought on from years of the previous government’s expansionist rule, slow decision-making and graft-ridden policies.



Humiliating defeat for Congress
With voters choosing to side with the BJP in such a big way, the Congress found itself relegated to a position it likely would have never imagined, notching up a mere 44 seats -- the lowest in its history.

While many analysts blamed the UPA’s disastrous performance especially during its second stint, others believe the party’s dynastic, charisma-lacking leadership, as well as its ageing “welfarist” approach to the economy put off voters.



NDA’s maiden Budget short on reforms
 Even as finance minister Arun Jaitley had all of 45 days to prepare for the year’s full Budget, economists, corporate and analysts were still disappointed from the lack of bold ideas in it.

Some even called Jaitley’s Budget as an extension of Chidambaram’s in February, with the focus on high-octane social-sector spending as well as an undue focus on meeting the fiscal deficit target.


SC cancels coal block allocations

In a landmark judgment in the coal scam in September, the Supreme Court cancelled allocations to every single block handed out to captive miners in the 20 years ending 2012.

These mines were given away virtually free of cost to private and state companies in the power, steel and cement sectors (in which coal is a vital input) to allow them to mine the mineral for their own end use, after the only legally-allowed miner, Coal India, was seen failing to meet their, and the economy’s, surging demand for coal.

But the court termed the decision as “arbitrary and illegal” and asked companies to pay a fine of Rs 295 (roughly the profit Coal India makes) for every tonne of coal mined over these years – leading to a total penalty of well over Rs 10,000 crore.

Later, the government decided to re-allocate the cancelled mines in an e-auction that is set to conclude shortly.


Fed ends QE
As outlined by Federal Reserve in 2013, where it had signaled it would start tapering its bond-purchase programs known as “quantitative easing” gradually, the US central bank unwound it this year.

QE is an unconventional monetary policy tool that Fed has resorted to in the wake of the global financial crisis in which it buys long-dated bond securities in order to bring down long-term interest rates down, in the hope low borrowing costs would push consumer spending higher.



But promises to keep interest rates low
Even as the Fed unwound its QE, the central bank pledged to keep interest rates – the standard monetary policy tool used to set the tone for the economy – low “for a considerable period of time”.

However, of late, the resurgence in the US economy has rekindled the debate whether the Fed would increase interest rates in 2015 or not, with many leaning towards the former.


China GDP growth falls to 5 year low
China, the bulwark of global growth since the global crisis, finally appeared to be slowing down, some of it consciously after the government slammed the fiscal brakes and reined in credit growth by tightening bank lending norms – after concerns over rapidly-increasing wage prices and a real estate bubble engulfed the economy.

In the third quarter, the world’ largest economy was seen growing at 7.3 percent, the slowest in five years, as Beijing tries to engineer a “soft landing” as well as calibrates its growth model from export-driven to internal consumption driven.


Japan announces QE; snap polls soon after
If less is good, more must be better. With this philosophy in mind, Japan, the inventor of quantitative easing, announced a massive USD 720 billion program in November, after its economy shrank a mammoth 7.1 percent in the recent quarter.

 After emerging stronger in a snap election, it appears Shinzo Abe is determined to lift the Japanese economy out of 20 years of deflation using an unprecedented monetary experiment that already some critics are warning could have side effects: in the form of currency wars (as yen depreciates from more money in the economy, other exporter countries will be forced to follow suit) and a potential chance of uncontrollable inflation in the future.


Eurozone worries mount on sluggish economic growth
Not just China and Japan, Eurozone, the fourth vital cog in the global economy aside of the US continued to struggle in a big way, expanding only 0.2 percent in the third quarter of 2014 (and 0.3 and 0.1 in the previous two quarters).

But while there is plenty of blame to go around, Eurozone’s recessionary problems are blamed (depending on who you ask) on either its “austerity” drive of the last few years or the Union’s ill-fitting one-size-fits-all approach to monetary policy.

Whatever be the case, it is clear the bloc’s problems are not ending in a hurry – and continuing sluggishness continues to add to the nation that the union idea was not a good one.




Source : Moneycontrol.com