Foreign Trade Policy for 2012-13: 7-Point Strategy To Boost Exports

Commerce and Industry Minister Anand Sharma has unveiled the Foreign Trade Policy for 2012-13 on June 5. He announced a seven-point strategy to boost exports which include extension of interest subsidy scheme by one year until March 31, 2013. The policy is based on a seven-point strategy which includes thrust to employment intensive industry, encourage domestic manufacturing for inputs to export industry and reduce the dependence on imports, promote technological upgradation of exports, persist with a strong market diversification strategy, encourage exports from the northeastern region, incentives for manufacturing of green goods and reduce transaction costs.

The policy continued with most of the export tax sops and increased the ambit of some others to help exporters rack up $360 billion in exports in the current fiscal. It is indeed a difficult task to present a policy which aims for rapid growth in exports in the face of weak global demand and the unabated persistence of the global economic crisis which erupted four years ago.

Market Diversification

The seven-pillars to boost exports, Sharma said, would also include efforts to increase exports from the north-east region and provide incentive for manufacturing of green goods.

In addition, there would "endeavor to reduce transaction cost through procedural simplification and reduction of human interface. Efforts would be made to promote technological upgradation of exports to retain a competitive edge in global markets and encourage domestic manufacturing for inputs to export industry, thus reducing dependence on imports. The zero-duty Export Promotion Credit Guarantee (EPCG) scheme would be extended by an year to March 31, 2013.

On market diversification, market-linked focus product scheme has been extended until the end of the current fiscal 2012-13 for exports to the United States and European Union (EU), in respect of apparel sector.

Special Economic Zones

As regards the Special Economic Zones (SEZs), he said, "we will come out with new guidelines to make the operation of the SEZ policy more buoyant." In addition, the minister said the government would revamp the 100 per cent Export Oriented Unit (EOU) scheme in the next few months.

The benefits under the scheme, he said, would also be available to those units which had taken benefits under the Technology Upgradation Fund Scheme (TUFS).

The EPCG scheme will also be available for those who had surrendered their benefits under the Status Holder Incentive Scrip (SHIS) scheme.

The government will come out with new guidelines to revive export hubs, SEZs which have lost their sheen after the imposition of the minimum alternate tax and a proposal to take away tax incentives. The government accepted the key demand of industry to extend the two per cent interest subsidy until March 2013.

India’s Exports

India’s exports grew by 21 per cent in 2011-12 to touch $303 billion. The country’s exports inched up 3.23 percent to $24.5 billion in April from a year earlier after falling in March, a far cry from the more than 20 percent growth recorded in recent years. India has been hit by falling demand from its traditional export markets in the United States and Europe.

The export figures compounded an already gloomy economic picture — Gross Domestic Product (GDP) data showed the economy grew at its slowest pace in nine years in the first three months of 2012.

Salient Features

* Foreign Trade Policy document made more user friendly

* Incentives for exports from north-eastern states

* The government to come out with new guidelines to promote SEZs

* The government aiming 20 per cent export growth in 2012-13

* Two per cent interest subsidy scheme extended until March 2013

* Seven new markets added to Focus Market Scheme

* Single revolving bank guarantee for different export deals

* Focus on market diversification to continue

* Steps announced to reduce transaction cost of exports

* Market linked focus product scheme extended until March 2013 for apparel export to the United States and EU

* Ahmedabad, Kolhapur, and Shaharanpur new Towns of Export Excellence

* Zero per cent duty EPCG scheme for technology upgradation extended until March 2013

* Shipments from Delhi, Mumbai through post, courier or e-commerce to get export benefits

China Announces Defense Budget: Beijing Sets 7.5 Per Cent GDP Target

China has announced it will increase defense spending by 11.2 per cent in 2012, for the first time taking its annual military expenditure beyond $100 billion as it puts in place plans to modernize its Army against the backdrop of an uncertain regional environment.
The planned defense budget was announced in Beijing on Sunday as 670.274 billion yuan ($106.39 billion), an increase of 67.604 billion yuan over the expenditure in 2011 and an 11.2 per cent year-on-year rise.
The present hike will bring official outlays on the People's Liberation Army (PLA) to 670.3 billion yuan ($110 billion) for 2012, after a 12.7 per cent increase in 2011 and a near-unbroken string of double-digit rises across two decades.
The rise in military spending was in keeping with the growth in the Gross Domestic Product (GDP) and fiscal expenditure. The spending as a share of GDP was only 1.28 per cent, lower than many countries including the United States and the United Kingdom. “where it exceeds 2 per cent.”
Double-Digit Percentage Rise
It, however, remains unclear how China's neighbors will perceive the double-digit percentage rise, with several countries, from Japan to those involved in disputes over the South China Sea, having expressed concerns in recent months over the rise in military spending.
The defense budget grew by 12.7 per cent last year to $91 billion, though spending grew by a lower than expected 7.5 per cent in 2010, the first time in two decades that the increase was a single-digit figure on account of the global financial crisis.
China's spending in 2012 will exceed what India spent last year by three times — India's defense expenditure was reported at $36 billion in the 2011-12 budget.
In addition, the specified military spending, which many western analysts say is far higher than the official version, China in 2011 spent over $100 billion on internal security. The hike in China's defense budget, which is now almost triple of the Indian defense spending, may impact New Delhi's military expenditure.
India had allocated $ 36.04 billion for defense in 2011, which represented an 11.59 per cent growth over the 2010 budget.
US President Barack Obama has sought to reassure Asian allies that the United States will stay a key player in the area, and the Pentagon has said it will "rebalance toward the Asia-Pacific region".
Obama's proposed budget for the fiscal year of 2013 calls for a Pentagon base budget of $525.4 billion, about $5.1 billion less than approved for 2012.
Beijing has sought to balance long-standing wariness about US intentions with steady relations with Washington, especially as both governments focus on domestic politics this year, when Obama faces a re-election fight and China's ruling Communist Party undergoes a leadership handover.
But the US "pivot" has fanned unease in China, with some PLA officers calling it an effort to fence in their country and frustrate Beijing's territorial claims.
GDP Growth
China has set its growth target for 2012 at a lower-than-expected 7.5 per cent, in an indication that its focus during a crucial transition year would be on maintaining stability and achieving more balanced growth.
The 7.5 per cent target is the first in eight years that has fallen below 8 per cent, long seen by Chinese officials as the minimum level of growth needed to maintain internal stability. The Chinese economy does, usually, exceed the annual targets set by the government, and is expected to surpass the 8 per cent figure this year as well. The economy grew by 9.2 per cent in 2011, down from 10.4 per cent in 2010.
Assessment
Asian neighbors, however, have been nervous about Beijing's expanding military, and this latest double-digit rise could reinforce disquiet in Japan, India, Southeast Asia and self-ruled Taiwan, which China considers part of its territory. Japan and China have locked horns over islands each claims in the East China Sea; Vietnam, the Philippines and other nations have challenged Beijing over claims to swathes of the South China Sea that could be rich in oil and gas.
It was understood that China has been constructing an aircraft carrier, although the timing of its deployment is not known. It was believed that China was also developing stealth fighters, all these programs made people wonder what the assumption behind such military modernization was about.
The growth trajectory of China's military modernization, as evident from the country's latest defense budget, has attracted much attention across the Asia Pacific region. This followed the expression of concern, in some regional circles, over some of China's recent “military manoeuvres.”

State of Indian Economy: GDP Pegged at 8.4 Per Cent

The Central Statistical Organization (CSO) has released the quick estimates of national income. According to the CSO, the Gross Domestic Product (GDP) growth estimates for 2010-11 slightly lower to 8.4 per cent from 8.5 per cent projected earlier.
The country's GDP in 2010-11 at factor cost at constant prices (2004-05) grew by 8.4 per cent over the previous year. The services sector expanded by 9.3 per cent. The agriculture sector grew by 7 per cent as against 1 per cent in 2009-10. The rate of growth of industry was 7.2 per cent as against 8.4 per a year ago.
Rate of Investment
The savings rate is placed slightly lower at 32.3 per cent in 2010-11 as against 33.8 per cent in 2009-10, the fall was mainly due to a decrease in financial savings of the household sector. The gross domestic capital formation or the rate of investment is placed at 35.1 per cent in 2010-11 as against a level of 36.6 per cent in the previous fiscal.
The savings rate in 2010-11 has declined from 2009-10. The major reason for the decline is due to decrease in the rates of financial savings of household sector from 12.9 percent to 10 percent and the private corporate sector from 8.2 percent to 7.9 percent. However, the rate of savings of the public sector has increased to 1.7 percent in 2010-11 as compared to 0.2 percent in the previous year.
The growth numbers for 2010-11 seem robust when compared to the Finance Ministry's estimates for the current fiscal and the next (2012-13). With hopes of improvement in governance and speedier reforms, the ministry expressed confidence that economic growth in 2012-13 would edge up from a tad over 7 per cent during the current fiscal.
Reducing Subsidies
C. Rangarajan, chairman of the Prime Minister's Economic Advisory Council, stressed on the need to focus on reducing the overall level of subsidies as a proportion to GDP through an appropriate road map to reach the Fiscal Responsibility and Budget Management (FRBM) target of 3 per cent of GDP.
He underscored the difficulty in keeping fiscal deficit within the targeted 4.5 per cent during the current financial year but stressed on the need to keep it close to the targeted level to gain credibility.
Rangarajan also expected the GDP growth rate to be in the range of 7-7.25 per cent during 2011-12 as against the 8.4 per cent registered a year ago, given the industrial slowdown and the global economic crisis. Emphasizing that some segments of the economy were influenced by external factors, Rangarajan feared that should the European situation worsen it would affect the country's growth adversely. The global situation had affected the balance of payments situation and the rupee due to reduced inflow of capitals.
Rangarajan, however, expected the economic outlook to be better in 2012-13 with inflation and interest rates settling down to lower levels. He expected inflation to come down to 7 per cent by March-end.

World Economic Situation and Prospects 2012

The United Nations has warned that the world is on the brink of another recession, projecting that global economic growth will slow down further in 2012 and even emerging powerhouses like India and China, which led the recovery last time, will get bogged down.
The UN “World Economic Situation and Prospects 2012” report has cut the global growth forecast for next year to 2.6 per cent from 4 per cent in 2010.
It has called 2012 a "make-or-break" year for the global economy, which will face a "muddle-through" scenario and continue to grow at a slow pace.
"Following two years of anaemic and uneven recovery from the global financial crisis, the world economy is teetering on the brink of another major downturn," the UN report said, warning that "the risks for a double-dip recession have heightened".
The report said the failure of policymakers, especially those in Europe and the United States, to address the jobs crisis, prevent sovereign debt distress and escalation of financial sector fragility poses the most acute risk for the global economy in 2012-13.
GDP Growth
Growth in developing countries like India and China, which had stoked the engine of the world economy so far, will also slow down to 5.6 per cent in 2012 from 7.5 per cent in 2010
"Developing countries are expected to be further affected by the economic woes in developed countries through trade and financial channels," the report said. Gross Domestic Product (GDP) growth in China and India is expected to "remain robust, but to decelerate," it said.
India's economy is expected to expand by between 7.7 per cent and 7.9 per cent in 2012-13, down from 9.0 per cent in 2010. In China, growth slowed from 10.4 per cent in 2010 to 9.3 per cent in 2011 and is projected to slow further to below 9 per cent in 2012-13.
Notably, the United Nations has revised its 2012 prediction downward for every major country. It projected 1.3 per cent growth for the US (down 0.7 per cent from its last forecast), 1.5 per cent for Japan (down 1.3 per cent), 0.5 per cent for the 27-nation European Union (down 0.8 per cent) and 8.7 per cent for China (down 0.2 per cent).
Persistent Weaknesses
The report stated that a serious, renewed global downturn is looming because of persistent weaknesses in major developed economies on account of problems left unresolved in the aftermath of the recession of 2008-2009. It said that most developed country governments have indiscriminately switched from fiscal stimulus to premature austerity measures. This has further weakened global aggregate demand, already nurtured by persistent high unemployment.
Financial and Commodity Markets
Additionally, the economic woes in Europe and the US are exacerbating volatility in international financial and commodity markets and slowing growth in developing countries. All of these weaknesses are present and reinforce each other, but a further worsening of one of them could set off a vicious circle leading to severe financial turmoil and a renewed global recession for 2012-13.
The report outlines several policy directions that could avoid a double-dip recession, including the optimal design of fiscal policies to stimulate more direct job creation and investment in infrastructure, energy efficiency and sustainable energy supply, stronger financial safety nets, better coordination between fiscal and monetary policies, as well as providing sufficient support to developing countries for addressing the fallout from the crisis.

Importance of BRIC

The importance of Brazil, Russia, India and China (BRIC) in the world economy has increased manifold since the acronym was first coined nearly seven years ago. Few could have imagined then how the American economy would collapse and bring down with it much of the rest of the world. It is worth revisiting the original formulations on the significance of these four major countries that were made by representatives of a major American investment bank — now a much-maligned tribe and justifiably so — to understand why these economies would together influence the future of the planet we live in.
In October 2003, a report by two economists then employed by Goldman Sachs, Dominic Wilson and Roopa Purushothaman, argued that over the next half-century, the four countries of Brazil, Russia, India and China would become a much larger force in the world economy than the Group of Six (G6) developed countries, namely, the United States of America, Japan, Germany, France, Italy and the United Kingdom. According to the report, in 2050, India’s economy would be the third largest in the world after China and the United States. However, in terms of per capita income measured in US dollars, India would come last among the 10 countries being compared.
Economic Stability
The four BRIC economies taken together would be bigger than the G6 by 2039, it was pointed out. By 2025, these countries could account for over half the size of the G6 whereas the combined Gross Domestic Product (GDP) of the four economies were worth less than 15 per cent at the time the report was written.
The report predicted that in terms of US dollars, China would overtake Germany by 2007, Japan by 2015 and the United States by 2039. India’s economy could be larger than all but the United States and China in 30 years and Russia would overtake Germany, France, Italy and the United Kingdom. Of the current G6 countries, only the US and Japan may be among the six largest economies in the world by 2050.
What is noteworthy is that the Goldman Sachs report pointed out that India has the potential to show the fastest rates of growth over the next 50 years compared to the other nine nations. The real rate of growth of India’s GDP could be higher than five per cent over the next 30 years and close to five per cent till as late as 2050, the report claimed. India would be the only country among the BRIC economies recording growth rates significantly above three per cent per year. These figures appear rather conservative today — the Indian economy has grown by over nine per cent four years in succession and even at a time when the world economy is in recession, the most pessimistic estimate of this country’s GDP growth rate would be four to five per cent.
Goldman Sachs Report
It is important to note the downside that was mentioned in the Goldman Sachs report. Despite much faster growth, individuals in the BRIC "are still likely to be poorer on an average than individuals in the G6 economies by 2050". The exception would be Russia, which would catch up with the poorer among the G6 countries in terms of income per capita by 2050. China’s per capita income could be similar to where the developed countries are now (about $30,000 per capita per year) for, by 2050, the per capita income in the US would be roughly $80,000. By way of contrast, India’s per capita income would be a much lower $18,000 against around $50,000 in Russia and over $26,000 in Brazil, the report prognosticated.
A second report focusing only on India was written by Ms Purushothaman in April 2004 in which she pointed out that India and China (together account for 40 per cent of the world’s population) have both witnessed strong growth, both have surplus labour and both countries have diasporas to contribute to economic development. Yet, according to her, India was 10-15 years behind China in the "reform process", suggesting that better growth was yet to come in India.
Ongoing Economic Crisis
While pointing out the differences in economic orientation, Purushothaman did not mention the important political differences between the world’s two most populous nation-states: India is a heterogeneous, noisy, anarchic democracy while Chinese society is relatively more homogeneous, regimented and wary of granting its citizens excessive political freedom. On hindsight, it is also apparent that the BRIC report by the economists engaged by Goldman Sachs erred extremely on the side of caution. After the ongoing economic crisis, it has become apparent that the gap between the BRIC countries and the G6 would narrow at a much faster pace than had been anticipated.
India currently has no choice but to engage with Brazil, Russia and China in a more proactive manner, simultaneously competing and collaborating with them. Over the past three years, China has overtaken the United States as India’s largest trading partner. Russia, the world’s largest exporter of oil and natural gas, had been badly hit by the sharp fall in world oil prices but is expected to revive with oil prices firming up and expected to rise further. The International Monetary Fund (IMF) projected in April that Russia’s economy would grow by 0.5 per cent in 2010 after shrinking by six per cent during the current calendar year.
Changing Geo-Political Realities
With more than an element of hyperbole, there is no gainsaying the potential of Brazil becoming the "granary" of the planet, China the world’s "factory" and India, its "communications centre." Many in this country, particularly the Left, have been critical of Prime Minister Manmohan Singh for his ideological "tilt" towards the imperialist and capitalist US and the West. But in today’s recession-hit world, economic ideologies have turned upside down and India certainly cannot ignore the rapidly-changing geo-political realities or the fast shift in global economic power balances.
There is one glaring omission in the BRIC combine that needs urgent rectification. The acronym needs to be made BRICS with the addition of the letter "S" to include South Africa, the most powerful economy in the continent of Africa. That would make the grouping truly representative of the world and, perhaps, even a formidable combination for the future.

India’s Economic Growth Rate

India's economic growth has slumped to 7.3 percent in the first half of the current fiscal, substantially below the budgetary estimate. The Gross Domestic Product (GDP) growth declined to 7.7 percent in the first quarter and it slumped further to 6.9 percent in July-September period. The economic growth was likely to be better in the second half of the current financial year. It is hoped that the country will be recovering some of the loss in our growth momentum and may end the year over 7.5 percent." The finance minister said the government was not in a position to boost growth through stimulus as it did during the global financial crisis in 2008-09.
Inflation Rate
Inflation has remained stubbornly high, near double digit, for the last two years despite an aggressive monetary tightening by the Reserve Bank of India (RBI) and claims of a series of fiscal measures by the government. Headline inflation based on the wholesale price index was recorded at 9.73 percent in October. However, food inflation has moderated in the recent week. It was recorded at 8 percent for the week ended Nov 19, according to the latest official figures.
Food inflation dropped to a four-month low of 8 per cent as on November 19, reflecting fall in prices of essential items like onions, potatoes and wheat giving relief to common man, while rates for rice and vegetables increased at a moderate pace.
Decline in food inflation may also give respite to the government which is facing heat from the Opposition on various issues, including the price rise. This is lowest since July 16 when it was 7.16 per cent.
The RBI raised the repo rate by 25 basis points to 8.50 per cent and the reverse repo moved up by a similar percentage to 7.50 per cent in its last policy review in October. Repo is the short-term rate at which the RBI lends to banks, while reverse repo is the rate at which it gets funds from banks.
The central bank has hiked policy rates five times this fiscal. In the last one-and-a-half months alone, it has raised the key rate (repo) by 50 basis points.
Foreign Trade
India's exports grew by just 10.8 per cent to $19.8 billion in October, the lowest in the past two years, mainly due to the declining demand in the US and Europe. The growth rate has been the lowest since October, 2009, when it contracted by 6.6 per cent.
According to the Commerce Ministry data, imports grew at a faster rate of 21.7 per cent to $39.5 billion leaving a trade deficit of $19.6 billion, the highest ever in any month in the last four years, which is also due to expensive crude oils and vegetable oils.
From a peak of 82 per cent in July, export growth has slipped to 44.25 per cent in August, 36.36 per cent in September and 10.8 per cent in October.
In October, oil imports grew by 20.73 per cent to $10 billion, whereas the non-oil imports rose by 22 per cent to $29.4 billion over the year-ago period.
But, for the cumulative April-October period, exports aggregated to $179.7 billion showing a handsome growth of 45.9 per cent, thanks to sterling trend witnessed in the previous months of the current fiscal.

Change of Reign in Italy: Mario Monti Replaces Silvio Berlusconi

Former European Commissioner Mario Monti has become the new prime minister of Italy replacing Silvio Berlusconi that will try to reverse a disastrous collapse of market confidence in Rome.
After losing all confidence in financial markets, Berlusconi resigned as prime minister, as promised, after both houses of Parliament passed emergency austerity and reform measures with unusual speed.
President Giorgio Napolitano tapped Monti on 13 November to create a government capable of implementing economic reforms aimed at reviving stagnant growth to bring down public debt, stuck near 120 percent of Gross Domestic Product (GDP).
Improving market confidence in Italy is crucial to the future of the euro zone as the country would be too expensive to rescue. A default on its $2.6 trillion in debt would cause massive chaos in financial markets and shake the global economy.
In 1978, Berlusconi set up Fininvest, a holding company which grew to include several large household names, including Mediaset — with three national television channels — and AC Milan, one of the world's leading football clubs.
But poor investments saw his debts spiral in the early 1990s and critics say that Berlusconi — fearful a left-wing government would touch his powerful media conglomerate — entered politics not for ambition but to save his empire.
Italy’s Borrowing Costs
Monti went to work after a frenetic weekend of political activity, in which Italy’s Parliament approved a package of economic reforms agreed with European leaders, Berlusconi resigned and President Giorgio Napolitano appointed the respected international figure as head of a new government.
After a tumultuous week, when Italy’s borrowing costs rose to the kind of levels that saw Ireland and Greece forced to seek an international bailout, initial market reaction was positive, with both stocks and bond markets lifted.
Napolitano called for an extraordinary national effort to support Monti and win back the confidence of international markets, noting that Italy had to refinance some 200 billion euros of bonds by the end of April.
But once the initial boost from his appointment has passed, Monti will face a major challenge navigating the treacherous waters of Italian politics with clear signs of mistrust already emerging from the centre right.
Monti, a convinced free marketeer with a record of successfully taking on powerful corporate interests during his decade in Brussels, is expected to outline a policy program in line with demands made by Italy’s European partners.
Powerful Leader
Mario Monti made his name as the powerful Competition Commissioner who took on US corporate titans General Electric and Microsoft, blocking GE's planned merger with rival Honeywell and imposing a record 497 million euro ($683 million) antitrust fine on the software giant. His technical expertise, sharp intellect and diplomatic skills added to his refusal to bow to intense lobbying pressures made him one of the most highly regarded officials the Commission has seen.
A similar technocrat government under former Bank of Italy official Lamberto Dini passed important reforms in 1995 and the hope of many outside Italy is that Monti can do the same.
Berlusconi’s Ignominious Exit
Berlusconi’s ignominious departure, amid much jeering and booing, might have satisfied many Italians fed up at his sordid lifestyle and the lurid scandals that surrounded him, but it still leaves open the question of what direction Italy must now take. The key objective was not just to get rid of a gaffe-prone prime minister or cleansing public life, but initiating measures to stabilize Italy’s fast-deteriorating economic situation.
If anything, Berlusconi, who ruled for 17 years, provided some political stability to a nation famous for its short-lived coalition governments, but could not, in the end, inspire confidence among his European peers or the global international financial markets.
Berlusconi has at last resigned under tremendous pressure from various quarters. He had lost majority support in Italy’s parliament owing to his poor handling of the major financial crisis in his country, with his popularity rating plummeting to 22 per cent. His seductive smile was no longer of any use to the Italians, who wanted the 75-year-old media-baron-turned-politician to go along with his Go Italy party.
In fact, people were sick of his rule, lasting 17 long years, as Italy, the third largest economy of Europe, had shown an average .75 per cent annual economic growth rate for over 15 years. With this level of economic achievement, the Italian government’s debt burden had been mounting faster than the rise in the country’s capacity to bear it. The crisis Italy is faced with today was only waiting to happen.
The irony is that the Italian economy, unlike Greece’s, is not inherently a weak one; but its mismanagement by Berlusconi’s government left a lot to be desired. He was seen as a liability that needed to be swiftly replaced; which he has been, by an economist. Europe isn’t out of the woods yet, nor is the euro’s future secure.
The crippling debt problem in Greece that led to European leaders substantially increase the European Union’s bailout fund is of little significance when one compares it with the Italian debt burden. But the fear that the Greek financial contagion could spread to other Euro zone economies is real. Italy must be saved as quickly as Greece to prevent the economic ailment affecting France, which will mean a financial catastrophe for the entire Euro zone.
Tough Task Ahead
Former European Commissioner Mario Monti, who has replaced Berlusconi, has a tough task ahead. He will have to go in immediately for austerity measures — a huge reduction in the government’s expenditure and more taxes — which may hit the middle classes but are unavoidable. This is one way to bring down Italy’s debt burden, 118 per cent of the country’s annual GDP — a very high level even by European standards.
Fortunately for the new government, Italian citizens are not as much burdened with debt as are the people in the troubled countries like Greece, Spain or the Irish Republic. Behind Italy’s inability to earn more than it spends are factors like poor financial regulation, vested business interests, weak investment projects and an ageing population. These problems can be handled successfully if the new Prime Minister gets all-out support from all those who matter.

The next election is not due until 2013 but there are widespread predictions Monti will not last until then, making way for polls once he passes the reforms promised to Europe.

Vietnamese Economic Growth

Economic growth is set to reach between 7 and 7.5 percent annually during the 2011-15 period. The growth of industrial and construction value is to rise between 7.8 and 8 percent in each of the next five years, while agricultural growth is to increase 2.6-3 percent. Agriculture is set to comprise 17-18 percent of the Gross Domestic Product (GDP); the industry-construction sector, 41-42 percent, and services 41-42 percent. High-tech and high-tech application products are expected to account for 35 percent of GDP. Trained workers will account for 55 percent of the workforce. Export revenues are set to increase by 12 percent annually while trade deficits will be reduced to achieve a balance of trade by 2020. Social investment is set to comprise 40 percent of GDP on average over the next five years. Tax collection for the State budget is to reach 23-24 percent of GDP.
Budget Deficit
The budget deficit is to decrease to 4.5 percent of GDP by 2015. Eight million new jobs will be created. The agricultural, forestry, and fisheries sector will employ 40-41 percent of the workforce by 2015. Rural incomes are set to increase between 1.8 and 2 times over the 2010 figures. Population growth rate is set at 1 percent by 2015. Per-capita GDP is to reach $2,000 by 2015. Life expectancy is to reach 74 years by 2015. Poverty rate under the new criteria is to be lowered by 2 percent annually. Forest cover is to expand to between 42 and 43 percent by 2015.
Major Tasks
The Party in the 11th term, on the basis of consensus and leadership, aims to execute its views and tasks in all aspects stated in the political report, focus on leadership, and generate radical changes while carrying out these following major tasks:
* To strengthen the Party's leadership and combat capacity;
* To speed up administrative reforms, especially administrative procedures related to business operation and activities as well as people's daily life.
* To improve the quality of human resources in order to meet demands of industrialization, modernization and global integration of the nation.
* To build a synchronous infrastructure system, especially an efficient traffic system to replace an inadequate system which has caused rampant traffic jams, hampered economic growth, and stirred public anxiety.
* To improve wage policies, distribution and incomes of public employees and white and blue-collar workers, while overcoming the current unreasonable and negative impact of the existing wage and salary policies.
* To focus on solving a number of pressing social issues (degrading morality and lifestyle, social evils, and social order and discipline);
* To strengthen and increase the efficiency of the fight against corruption and waste to prevent and push back these evils.
* Approving the report on self-criticism of the leadership by the Party Central Committee, the 10th tenure, submitted at the 11th National Party Congress. Assigning the Party Central Committee, the 11th term, to receive the opinions of the National Congress in order to promote the strong points and adjust the weaknesses, improve the quality and efficiency of the leadership in the coming term.
* Approving the entire Communist Party of Vietnam Statute which has been amended.
* Approving the election results of the Party Central Committee which includes 200 comrades, of which 175 are official members and 25 are alternate members.
* Assigning the Party Central Committee, 11th term, and Party committees and organizations at all levels to develop programs of action and plans in order to work out the details and successfully carry out the policies and guidelines prescribed in the documents of the 11th Party Congress.
* The 11th National Party Congress calls on the entire Party, people, army, and overseas Vietnamese to continue to uphold the glorious tradition of the nation and Party and promote patriotism, self-reliance and persistence in pursuing national independence and socialism. The Congress also calls for dynamism and innovation as well as great efforts to fulfill the resolutions of the 11th Party Congress. Party leadership and fighting capacity should be promoted, national unity strengthened, and the renewal process accelerated in a comprehensive way in order to lay a foundation for the nation to become a modern industrialized economy by 2020 for the sake of a wealthy people, a strong nation, democracy, justice, civilization, and firmly heading toward socialism.

Midyear Review of Monetary Policy 2011-12

The Reserve Bank of India (RBI) on 25 October raised interest rates by 25 basis points and lowered the economic growth forecast to 7.6 per cent for the current fiscal even as it expressed hope that inflation will start coming down from December. RBI Governor Duvvuri Subbarao also deregulated savings bank deposit rates with immediate effect.
The policy is expected "to continue to anchor medium term inflation expectations", while stimulating investment activity to support growth.
Borrowers, who are livid at repeated rate hikes, can heave a sigh of relief as the RBI hinted at a reversal of policy stance by saying the likelihood of a hike in December is "relatively low".
The central bank has kept other key rateand ratio — Bank Rate and Cash Reserve Ratio (CRR) — unchanged at 6 per cent each. It also retained the Statutory Liquidity Ratio (SLR) at 24 per cent.
Earlier in May, RBI had raised the savings deposit rates to 4 per cent from 3.5 per cent.
The RBI has also proposed to notify banning prepayment penalty on floating rate home loans, as recommended by the Banking Ombudsman recently. The policy document further stated that RBI will issue the final guidelines on credit default swaps by November-end.
Economic Growth Rate
Factors like weakening global macroeconomic outlook and high domestic inflation will pull down the economic growth rate further, RBI said while lowering the Gross Domestic Product (GDP) forecast for the current fiscal to 7.6 per cent from its earlier projection of 8 per cent.
The central bank had earlier projected the Indian economy to grow by 8 per cent in 2011-12, lower than 8.5 per cent recorded in 2010-11.
The risks to the policy emanate from worsening global macro scenario, commodity prices and increase in government spending which could crowd out private investment, it said.
An important policy decision RBI announced is the freeing of savings bank deposit rates with immediate effect, the last bastion of the regulated interest rate regime.
The RBI said: "While growth in advanced economies is already weakening, there is a risk of sharp deterioration if a credible solution to the euro area debt problem is not found."
Rate of Inflation
In addition to inflation, the RBI said slowdown in project investments was also impacting growth. The overall inflation has remained above 9 per cent since December 2010. It was 9.72 per cent in September.
Elevated inflationary pressures are expected to ease from December 2011. The projection for Wholesale Price Index (WPI) inflation for March 2012 is kept unchanged at 7 per cent.
Food inflation, which account for 14 per cent in the overall inflation, stood at a six month high of 10.60 per cent
Significantly, despite the fall in inflation during the week, prices of onions went up by19.68 per cent on an annual basis while fruits turned 15.84 per cent dearer. Alongside, milk prices also rose by 10.76 per cent, as did prices of eggs, meat and fish by nearly eight per cent. On a yearly basis, cereals and vegetables were also dearer by 4.77 per cent and 4.31 per cent, respectively.
According to the WPI data, while inflation of overall primary articles stood at 11.13 per cent for the week ended July 9, down from 11.58 per cent in the previous week, inflation of non-food articles was pegged at 15.50 per cent for the week, up from 15.20 per cent.
The RBI also indicated that it might not go in for another rate hike in its midquarterly review in December 16, provided the inflation does not shoot up further. According to the RBI, if the inflation trajectory conforms to projection, further rate hikes may not be warranted. It stated that concerted policy focus is needed to generate adequate supply response in respect of items such as milk, eggs, fish, meat, pulses, oilseeds, fruits and vegetables.

India’s Industrial Production Dips

The Reserve Bank of India (RBI) is in an unenviable position ahead of its monetary policy review meeting scheduled on 16 September. It has to take a call on interest rates -- whether to raise them further in the face of continuing inflationary pressures or pause temporarily based on the latest disappointing factory output data. To its credit, the central bank has been much more realistic in turning the spotlight on the Indian economy's blind-spots than North Block. In its successive policy reviews, the RBI has not simply focused on inflation's stubborn persistence, but even warned of business mood dips impacting investment and consumption growth declining as interest rate-sensitive sectors face increasingly reluctant buyers.
GDP Growth
In fact, while New Delhi has tended to exhibit a misplaced optimism about growth prospects with its eyes shut, the RBI was ahead in scaling down its Gross Domestic Product (GDP) growth forecast for 2011-12 by a full percentage point to below eight per cent.
India’s GDP increased 7.8 per cent in the three months ended March 31 from a year earlier, the weakest pace in five quarters, government data show. Still, the expansion is the quickest after China among major economies, bolstered by higher incomes in the nation of 1.2 billion people. All in all, the portents for the Indian economy are far from encouraging.
Overall IIP
The latest industrial growth figures for July suggest that the slowdown that many experts and most policymakers thought would be temporary and narrow is, indeed, broad-based. The overall Index of Industrial Production (IIP) registered a year-on-year expansion of only 3.3 per cent, the lowest in 21 months. Manufacturing and mining grew by 2.3 per cent and 2.8 per cent respectively, while the 13.1 per cent increase in electricity was mainly a result of the good monsoon, which has helped boost generation from hydel stations. More disturbing has been the 15.2 per cent dip in production of capital goods, a proxy for investment activity. Even if one discounts for the unreliability of data for this sector -- leading to extreme growth volatility -- the fact that investment sentiment has been vitiated by recent political developments and concerns over ambiguous laws and tangled procedures among foreign investors cannot be missed. If industrial growth is slowing, there is the possibility of weakening demand on account of high interest rates further dampening it.
Growth in Mining Output
The growth in mining production was 2.8 per cent in the month, down from 8.7 per cent in the same month last year. Production of intermediate goods fell by 1.1 per cent during the month under review against a growth of 8.5 per cent in July 2010.
Consumer durables grew by 8.6 per cent in July as compared to a growth of 14.8 per cent in the corresponding month of last year. However, electricity production improved witnessing a growth of 13.1 per cent in July this year as against a growth of 3.7 per cent in July 2010.
Non-durable consumer goods (FMCG) production also grew by4.1 per cent in July, compared to a decline of 0.9 per cent in the same month last year.
Rate of Inflation
Persistent increases in its key policy rates over the past 20 months may have somewhat dented non-food 'core' inflation resulting from excessive demand. But the problem is that while demand in the manufacturing segment may have dipped, general inflation has not. Agricultural production has been tardy for quite a long time now. The services sector has been a saving grace but it cannot prop up growth beyond a point.
The international business environment continues to be bad and in fact deteriorating and with the RBI raising lending rates and tightening liquidity so as to check rampant inflation, the negative impact on economic activity and growth was not inconceivable. For once the Finance Ministry may be right when its Chief Economic Adviser Prof Kaushik Basu, says inflation will stay high until December. So the RBI, in a way a victim of its own success, will now have to battle high inflation and the prospect of falling output driven by weakening demand.
For policymakers it would be tempting to pass off the slowdown as partly the outcome of global woes just as earlier they claimed that inflation was also stoked by global commodity prices. But unlike the United States and the European Union, India did recover from 2008 with a smart pick-up in 2009. The current slide actually began in the past six months or so. And that has been the result of very successful monetary and very slothful public policies.

UN Trade and Development Report 2011

The overall recovery of the world economy is slowing down in 2011 with strong downside risks, according to the United Nations Trade and Development Report (UNCTAD) 2011.
“Global Gross Domestic Product (GDP) is expected to grow by 3.1 percent following an increase of 3.9 percent in 2010,” the report stated.
International Trade
The volume of international trade, particularly in developed economies, is expected to return to a single-digit growth rate in 2011, from 14 percent in 2010.
Regarding South Asia, of which India is a part, UNCTAD said the region is likely to be among the best performers with a growth of 7 percent in 2011.
With several factors hindering growth, recent developments across the Middle East have also contributed to and been affected by the global economic crisis.
Although the expansion remained relatively strong in all developing countries, North Africa and some West Asian countries were the exception, “where political unrest has adversely affected investment and tourism, and thus also growth.”
In countries like Egypt, the January 25 Revolution, which eventually toppled president Husni Mubarak, came about to demand social justice, democracy and equal opportunities. For this reason, the state faces continued pressure to modify its economic and trade policies in order to keep up with the changes in society.
“There needs to be a complete reappraisal of wealth distribution and employment opportunities in the country,” Ibrahim El Issawy, professor of economics at the National Institute of Planning, said during the launch of the report in Cairo.
“After the January 25 Revolution, we need to increase production in the country, it is the state’s role to change current policies that will help encourage an increase in production,” said El Issawy.
The issue of taxes was also raised by El Issawy. “Taxes should be reviewed,” he said. “Those who make LE 40,000 a year should not be taxed the same as those who make LE 1 million, for example.”
“We need a strategy to rehabilitate Egypt’s economy, we need an intensive national plan to achieve this,” he added.
Emerging Markets
However, several other developing markets have been able to sustain relatively fast growth when compared to the US or Europe because of their reliance on domestic demand.
Emerging markets including Brazil, South Africa, Turkey and India have all had to cope with the challenge of short-term capital inflows, “attracted by higher interest rates that reflect higher inflation rates or tight monetary policies.”
According to the report, these inflows have been putting “enormous appreciation pressure on their domestic currencies, and tend to weaken their export sectors and widen their current-account deficits.”
In order for developed countries to stride past this ongoing global economic crisis, they have to work together.
“There needs to be collaboration between developed countries in order to come out of this next period to boost trade development on a national and international level,” he added.
Since the global economic crisis of 2008, recovery of the US has been stalling with the pace of growth below where it is needed to be thus hindering employment.
“Even the second round of quantitative easing has failed to translate into increased credit for domestic economic activities, as domestic demand has remained subdued due to stagnating wages and employment,” the report stated.
“With little scope to lower interest rates further — as they are already at historically low levels — and fiscal stimulus waning, a quick return to satisfactory growth trajectory is highly unlikely.”
America’s slow recovery has been affecting several of the world’s largest economies, which are more dependent on trade with the US market.
The report pointed out that the recovery of the Japanese economy has also slowed down due to the impact of the unprecedented earthquake and tsunami that hit the country in March.
The European Union, also facing a debt crisis and recessions in countries like Greece and Ireland, expects growth to remain below 2 percent in 2011.
Furthermore, due to negative indications across many of the global markets, the report found that “international trade in both goods and services rebounded sharply in 2010, after having registered its steepest fall since the Second World War.” The report expects trade to return to single-digit growth.
“Commodity prices recovered very early in the cycle and have been exhibiting high volatility, owing largely to the greater presence of financial investors in commodity markets.”
Moreover, another dangerous factor for world economies is slow wage growth, which hinders domestic demand in developed and emerging markets. Wage growth is “essential to recovery and sustainable growth.”
“However, in most developed countries, the chances of wage growth contributing significantly to, or leading, the recover are slim,” the report pointed out.
Debt Restructuring Process
Slow wage growth also triggers discontent among populations and could significantly hinder production.
To combat these risks that global markets continue to face, the report suggested several points, among them is the change of policies, which may have not proven to be successful before.
For example, in the case the US debt crisis, debt restructuring would be necessary. “When defaults occur, debts need to be restructured, and the complexity of the restructuring process depends on the structure of the defaulted debt,” the report stated.
Growth-Enhancing Fiscal Policies
Moreover, “the best strategy for reducing public debt is to promote growth-enhancing fiscal policies and low interest rates.”
The report underlined that "unless there is a reversal of the current trend of diminished income expectations of the average household and a return to policies that emphasize the importance of mass income growth as the basis for sustainable and balanced development in rich and poor countries alike, all other attempts to regain growth momentum will be in vain."

Global Arms Trade

Since the past few decades, all economic activities of the world are being concentrated through different multinational organizations. Multinational companies and the racket or alliance of the international wheeler -- dealer businessmen use the 'black hole' or black market to increase their profit.
A big chunk of this treacherous capital is invested in different prefixed centers of black hole or black market. Among these are: narcotics trade, pornographic movie industry, flesh trade, expansion of sex tourism in some fixed regions, and money market.
Terrorism, which is an inevitable part of globalization, strengthens further the link of these gradually centralized lawful economy and black economy. One of the major characteristics or features of Europe or the United States is to build a military structure along with the general economic system in the state structure, which would ultimately be helpful for selling arms in the former colonies. Military economies of these states are expanded along with the general economies through development of suitable engineering and undercover researches. In the same mechanism, the money from the sale of arms in the former colonies fortifies or revs up the national economies. This military economy is still prevailing. Side by side with the Western countries, China, North Korea, and Russia are expert in this respect. However, intelligence agencies are created to protect the interest of those who have their own military economy, black economy, technological development and research system, and dualistic approach. In this way, the military authority and the companies that are created by that country are expanded through the help of diplomatic efforts. Such as
1. In the United States, a secret organization has been created or developed in combination with the CIA, Pentagon, and secret service, which has created another powerful state within the state, which Michael Parenty has identified as Alpha 84 in his book entitled the Against Emperor.
2. In 1990s, a Sinhalese officer noticed while taking command training in Israel that a group of the Liberation Tigers of Tamil Eelam embers are taking training manipulating their name which was not unknown to the Israeli intelligence agency Mosad. These intelligence agencies give training both to the pro-government and anti-government elements of the former colonies and in the Third World countries at the same time. And this is their dualistic approach. And there is a beckoning of profit of huge black money behind this. Military economy is expanded through the sale of arms after the creation of wars. Developed intelligence agencies strengthen this economy after giving birth to terrorism. Terrorism has now become a profitable business in the world. The leaders of terrorism are made heroes. Such as Usama Bin Ladin. This Usama Bin Ladin has been created by the United States. Terrorists are given publicity to increase their market price in black economy. For, it is profitable for all in the globalization. The more the terrorism would flourish within a state and against a state, the more the capital of the capitalists would grow and there would be surplus of the capital. The incident of 11 September in the United States and the war in Afghanistan -- all has emerged from the desire of expansion of capitalism. The more there would be such types of war and terrorism, the more the globalization would benefit. After the attack of 11 September, George W. Bush had stated the 'war on terror.' According to the US Administration, a huge quantity of arms is sold in 90 percent of the terror-infested countries. The US Administration announces that the US has the right to wage war against any country; the United States can silence anyone who would stand in the way of their building of 'American Century.' The United States has the capability of accumulating the huge amount of money needed for this war; the US Administration meets the costs or expenditure of war from the tax of the people. At present, the defense budget of the US is about $500 billion.
The joint defense budget of the states that are 'Satan states' is very meager compared to the US budget -- only $15 billion. The military budgets of all the states in the Middle East, nations under NATO as well as Russia and China are accumulated, it will come nowhere near the defense budget of the United States. The part of the US in the military expenditure of the world is gradually increasing or on the rise. The military expenditure of the world from 1895 to 1898 dropped to $809 billion from $1.2 trillion. But the US military expenditure is going up gradually. In 1985, the part of military expenditure was 31 percent of the total military expenditure of the world which rose to 36 percent in 1998. At present, the part or portion of military expenditure further went up as the US defense budget had increased by 70 percent in 2003 in comparison to 1998. According to statistics of a World Bank economist, Joseph Stigliz, the US expenditure in the second war in Iraq until 2006 stood at $3 billion.
The United States is spending money in war several times more than other superpowers. Today's US-centric economy is surviving or sustaining as the savings of the whole world is providing money for its random expenditure after being transformed into dollar. And this is the reason behind America's war preparation or readiness. All will spend in dollar as the number one superpower US is behind it. And to make it understand, the United States takes an attacking stand very often. The United States invests a huge amount of money for manufacturing arms whose market is created on politics. The expenditure of Iraq war was $3 trillion. A big chunk of this huge budget is invested or spent in creating demand for arms. Before the Iraq war, the profit rate or margin of all the arms and fighter plane manufacturing organizations was declining or dropping. Just with the start of the Iraq war, the profit rate of these organizations quickly shot up. The share prices of the crisis-ridden oil companies had gone up. The more the destruction in Iraq goes up or escalates, the more the manufacturing organizations make profit or trade. Canadian writer researcher Naomi Clane said about US policy, 'First destroy; if you do not destroy then how you would build?' The US Government spent $11 trillion for its military force from 1948 to 1994. This amount is more than the price of all the wealth created by the people in the United States. According to the Centre for Defense Information data, in 1990 the military expenditure of the United States was $2.9 trillion. After the United States, on the list were Japan -- $40 billion, France -- $36 billion, the United States -- $35 billion, Germany -- $31 billion, Russia -- $29 billion, and China -- $22 billion. The military expenditure of the United States of any year is more than the military expenditure of the next 15 countries. Several million poor children could be provided food for ten years with the cost of manufacturing a plane-carrying war ship. Several times more money has been spent for manufacturing a salvage vessel for sunken or submerged submarines of the navy than the cost of protection to save people from accidents at workplaces, maintaining mass libraries or public libraries and daycare centers for the children of the service-holder parents. The price of the spare parts of the military force and the arms and ammunition of the arsenal of Pentagon is several times more than the accumulated expenditure for checking environmental degradation or pollution, and protecting the environment, social development, housing and mass transport by the US Government. General Motors, General Dynamics, Genial Electric and for other generals to help keep the world safe and the money spent for arms is totally provided by the government. And the US Government is provided with the money by the US citizens.
Arms Sales Agreements of World's Top Small Arms Selling Countries [2002-09]
Country amount of sales in US dollar [billion] Percentage of total sales:
The United States: 166.276 40 percent
Russia: 73.965 18 percent
France: 35.175 8 percent
The United Kingdom: 29.379 7 percent
China: 13.652 3 percent
Germany: 9.742 5 percent
Italy: 12.531 3 percent
European countries: 43.752 10 percent
Other countries: 22.559 5 percent
Source: Conventional Arms Transfer to Developing Nations 2002-09
Top Arms Exporting Countries of 2010 [statistics in percentage of total global export]
1. The United States: 30 percent
2. Russia: 19.7 percent
3. Germany: 10.9 percent
4. France: 8.2 percent
5. The United Kingdom: 4.5 percent
Source: SIPRI, Year Book 2010
Top Arms Manufacturing and Selling Companies of 2008
1. BAE System, UK: $32,420 million
2. Lockheed American, US: $29,880 million
3. Boeing, US: $29200 million
4. Northrop Grueman, US: $24,600 million
5. General Dynamics, US: $22,780 million
6. Rethion, US: $21,900 million
7. UADS, the Netherlands: $17,900 million
8. Finmekkanika, Italy: $13,020 million
9. L and Communication, US: $12,160 million
10. Thales Group, France: $10,760 million
Top 10 Arms Importing Countries of 2009
1. India: $2,116 million
2. Singapore: $1,729 million
3. Malaysia: $1,494 million
4. Greece: $1269 million
5. South Korea: $1,172 million
6. Pakistan: $1,146 million
7. Algeria: $942 million
8. The United States: $831 million
9. Australia: $757 million
10. Turkey: $675 million
Top Five Arms Exporting Countries of 2009:
1. The United States: $6795 million
2. Russia: $4469 million
3. Germany: $2,473 million
4. France: $1,851 million
5. The United Kingdom: $1,024 million
From 2006 to 2009, Turkey, Georgia, Armenia, Syria, Lebanon, Jordan, Oman, Cyprus, Saudi Arabia, Yemen and North African countries bought mentionable arms from the top arms producing countries of the world. It may be mentioned that arms are sold most in this region. The details of mentionable arms purchase.
The United States
Three hundred thirty-one The Tank and self-propelled guns
Five hundred fifty-six APC and armed cars
Six mine surface combatants
Sixty-two supersonic combat aircraft
Three hundred sixty-three surface to air missiles
Russia
Two hundred seventy tank and self-propelled guns
One hundred sixty APC and armed cars
Fifty supersonic combat aircraft
Five thousand four hundred thirty surface to air missiles
Ten surface to surface missiles
Twenty anti-ship missiles
China
One hundred and fifty APC and armed cars
Thirty anti-ship missiles
Europe
Thirty-two mine surface combatants
One thousand three hundred sixty APC and armed cars
Thirty tank and self-propelled guns
Nine hundred twenty surface to air missiles
One hundred ten anti-ship missiles
Fifty supersonic combat aircraft
Source: Conventional Arms Transfer to Developing Nations 2002 to 2009
No country in the Third World would be found which is not equipped from head to toe or completely by the arms and ammunition of the US defense contractors. These arms traders work closely with Pentagon to keep their several thousand dollars trade in different countries undisturbed or intact. The US arms makers are selling arms manufacturing technology side by side with selling arms. Turkey, South Korea, Taiwan, Israel, Egypt, Saudi Arabia, and Singapore are manufacturing various types of modern arms for the help of US arms manufacturers. Many of these countries have themselves become arms exporting countries.
According to a document of 'Next Step in Strategic Partnership,' India would be able to buy US war materials or equipment freely or without any hassle or hindrance and in exchange for that India would follow such a military or war strategies with the neighboring countries so that the strategies at the end keep or protect the interest of the United States. After the announcement in 2005, India and the United States have conducted 15 joint military .
The military expenditure is one of the major internal or domestic capital accumulations. It is such a necessary expenditure which is loved or endeared by the commercial interests or establishments. When the government spends money for postal system, state-run railway, low-cost housing and government hospitals not for profit, then the people can create commodities, services, and employment and can flourish the sources of taxes. Such sorts of public expenditure compete with the private market.
However, missiles and manufacturing warplane carrying ships are such an expenditure which does not compete with the private market. Military contractorship is more profitable than any trade contractorship. The taxpayers bear all the risks of productions. A refrigerator maker has to think to sell his commodities but an arms maker does not have to think to sell his arms. An arms maker has a concrete and genuine document or agreement with assurance of selling his arms including their extra production cost. Moreover, in the case of arms manufacturing, the government spends research expenditure and most of the development field expenditure. The expenditure in the defense sector creates a field of unlimited demand. The propensity of arms industry is to declare its own commodities obsolete and outdated at intervals. Because of technological development many arms of millions of dollars have become of old model. And then there develops a need for development of those arms or new arms instead of those arms or old arms. In addition, without inviting any competitive tenders, most of the military contracts are given. As a result, the arms makers more or less get the price they demand. And that is why an allurement is created for manufacturing costly and expensive arms for getting more benefits. The manufactured arms always do not become effective and suitable. In many cases their effectiveness does become negative. There is a profitable side in effectiveness of these arms, because for this extra allocation could be obtained so that these arms could be desirably made effectively.
It could be said in a nut shell that manufacturing arms is many times profitable than producing public commodities. That is why owners of the big corporations get busy to increase defense budget. The military sector is the sector with fewer risks for the corporations for making millions of dollars of profit. The expenditure for arms provides strength for capitalistic system, and at the same time it makes the government or nationalized sector pauper or destitute, which is meant not for profit. There are two fundamental reasons for the United States keeping itself as a superb arms power, although the United States does not have to face any superpowers. First, to keep the global capital accumulation safe and secure, there is a need for military installations. Second, the colossal military force itself is a direct source of earning or garnering huge capital.
Nuclear Arms
Many complexities had been created centering nuclear bombs in the field of international politics after the Second World War. The matter of restrictions on nuclear bombs is especially linked with the problems of world security and disarmament. On 5 August 1963, restrictions on nuclear arms were imposed and an international agreement was signed at the initiatives of the nuclear power countries. Then in June of 1968, an agreement against the proliferation of nuclear arms got approval in the United Nations, which is known as NPT.
In 1980s, two superpowers -- the United States and then Soviet Union -- had developed an understanding for limiting nuclear arms and contracting missiles. On 10 December 1987, the INF agreement was signed between the United States and the Soviet Union at a top summit for reduction and abolition of deadly atomic arms. The rivalry and competition between the two superpowers was reduced following the abolition or breakaway of the erstwhile Soviet Union. Later on 11 September in 1996 in the changed situation, the agreement regarding overall restrictions on testing of nuclear arms, the Comprehensive Test Ban Treaty [CTBT] was adopted in the General Assembly of the United Nations. The meaning of this treaty is that none could explode nuclear arms in air or water or land or underground. In fact, the nuclear power states got legal recognition in favor of their nuclear arms arsenal or amour after getting the CTBT passed in the UN General Assembly. Our neighboring country India did not sign this treaty. The major flaw in the treaty is that it prohibited only traditional nuclear explosion. That is why India termed the treaty Partial Test Ban Treaty. Director of Institute for Defense Studies and Analysis Baljit Singh thinks that the treaty in reality or in fact is Explosive Test Ban Treaty or ETBT, not more than this because the treaty took no initiative to stop non- explosive testing. As a result, the nuclear power or capable states could continue conducting test on nuclear arms in future in an alternative system through more modern technology. In talks in Geneva, the nuclear capable countries had totally rejected the demand for stopping any test by extending the area or purview or jurisdiction of the CTBT. The main proponents of the CTBT would be able take initiatives freely for development of nuclear weapons due to might in their developed technology. For conducting such tests, America, Russia, China and Britain have appropriate technology in their control. In addition, the United States has taken a decision to spend 94 million dollars for manufacturing new nuclear arms and super computers for test of those arms. The CTBT also did not reject the possibility of transfer of nuclear technology. In the past, China had transferred missile technology to Pakistan by totally flouting or violating the NPT.
In the field of nuclear arms, the United States is the first country that manufactured atomic bombs and it is also the first nation to use the bombs. The US force in 1945 dropped these bombs on Hiroshima and Nagasaki of Japan. In 1954 in Dienbienfu of Vietnam, the US Administration of President Eisenhower proposed France, on the eve or in the wake of defeat, to use atomic bomb. But Paris rejected the proposal. The US policymakers in the sixties and seventies in Vietnam and in Cuba in 1962 during missile crisis hinted to use nuclear arms in then Soviet Union. The United States from 1945 to 1990 exploded at least 950 nuclear bombs. This number is more than the total number explosion of nuclear bombs all over the world. The US military force has the biggest fleet of nuclear bomb carrying long distance warplanes including B-52, FB-111 and B-1. As they are a nuclear power, they are keeping Iran and North Korea under constant threat. As Cuba announced plan for building a nuclear power project, Washington made uproar centering probable nuclear capability of Cuba. The US activities of halting proliferation of nuclear arms have continued against some countries in a special political manner. Among these countries are Iraq, Iran, Cuba, North Korea, and Libya. Among them, the United States has kept Iraq under direct occupation by killing thousands of Iraqi people. In the recent past, the Western force under the US leadership has launched attacks on Libya in a special political situation. The US Administration has wanted to create instability in these countries. The United States was never seen worried and fickle over the arsenals of Great Britain, France, and Pakistan, and South Africa in the period before 1994, as the global US imperialism has no conflicts with the policies of these countries. When North Korea was shown as a nuclear threat, the matter of Japan's accumulation of plutonium by violating international treaty or agreement was overlooked or ignored by the Clinton administration. When Israel and North Africa were manufacturing hydrogen bombs, America was helping them by supplying different ingredients. Warren Christopher told before the international Relations Committee of the US Congress, 'The US is not now fully ready for total nuclear disarmament.' In fact, 'nuclear deterrence' was an inevitable element of the United States during the Cold War too. Had the US leaders been really willing to destroy nuclear arms from the world they could have reduced their own arms store or arsenal massively and would have followed disarmament policy strongly for all countries.
Although our neighboring country India had not signed the CTBT, it, in the field of non-military or private and transfer of technology, struck treaty with 45 countries to be in the nuclear supply group in September 2008. On the matter, Indian Prime Minister Manmohan Singh gave a statement with then US President George W. Bush [July 2005]. In the joint statement, Bush said: 'The United States will work with friends and allies to adjust international regimes to enable full civil nuclear energy cooperation and trade with India. 'Because of this treaty, India had been given permission to buy uranium from the nuclear supply group although India did not sign the nuclear non-proliferation treaty. According to analysts, India would become a big market of selling of the US nuclear reactor and technology.
Selling Arms to Developing Countries
In 2009, agreements for selling of arms worth $57.5 billion in the world were signed. The agreements in 2009 were 8.5 percent less than those in 2009. Since 2005, the arms of the least amount were sold in 2009.
In 2009, the United States was on the top of the list of arms sale agreements. They made agreements worth $22.6 billion that year. Russia was in the second position with $10.4 billion and France with $7.4 billion was in the third position. In 2006-09, globally, arms worth $244.5 billion were sold which was 29.5 percent higher than the sales of $172.4 billion in 2002-05. In 2009, the price of international arms supply was $35.1 billion and in 2008 it was $35.9 billion. The reason behind fall in arms sales in 2009 was global economic meltdown; the arms purchasing countries had been compelled to cut their budget spending for arms.
The arms producing countries made arms sales agreements of $45.1 billion with the developing countries in 2009, whereas it was $48. 8 billion in 2008. In 2009, the price of supplied arms to developing countries was $17 billion, whereas it was $20.5 billion in 2008. The United States and Russian are at the top of selling arms to developing countries while the United Kingdom is in the third position. Russia currently is trying to expand its arms market to Latin America. During the Cold War, Russia used to sell arms to Cuba. Venezuela is his new buyer in this region.
In 2002-09, France and the United Kingdom also sold arms to developing countries. Germany sold naval war materials to developing countries. The amount of arms sales in 2002 and 2003 was close or almost equal. But the arms sales started to increase from 2004 to 2008 to these countries. In 2008, the arms sales agreements were the highest 48.8 billion dollars. These days China has started selling arms to developing countries.
In 2009, the United States struck arms sales agreements of $17.4 billion with developing countries.
Among the US arms sales agreements with developing countries in 2009 was $1.7 billion agreement with Egypt of supplying 24 F-16 airplanes and 50 t0 52 fighter aircraft. The agreements included a deal with Taiwan for supplying Patriot air missile defense system of $3.2 billion, a deal with Kuwait of $1.1 billion for Ke-130 J aircraft, an agreement or pact with the United Arab Emirates of $745 million for UH-60M Black Hawk Chopper, and an agreement with Saudi Arabia of $540 million for supplying AH-64D Apache Helicopter and another deal of $400 million for armed vehicles.
Russia
In 2009, Russia made agreements of $10.4 billion with developing countries. Mentionable among these are an agreement of $1.8 billion with Vietnam for diesel submarines and a deal of $500 million for eight Su-MKL war airplanes, an agreement of 570 million dollars with Myanmar for 20 MiG-29 fighter airplanes and a deal with China of 500 million dollars for J-10 war airplanes. In addition, Russia gave Venezuela a loan of $2.2 billion by which Venezuela would buy from Russia 92 T-72 main battle tanks, 300 BMP-3 armed cars and different kinds of missiles.
China
During 2006-09, China made arms sales agreements on an average of $1.9 billion with the Third World in 2009. China struck a deal with Pakistan of $1.4 billion for selling 30 J-10 fighter airplanes. China's arms are still not of Western standard in terms of technology. That is why China is selling small arms to South Africa and developing Asian countries. The four main arm s selling countries are France, Germany, United Kingdom, and Italy. The United States and allies countries sell arms to the countries in NATO where US arms are not sold. These four countries together controlled 23.5 percent arms sales agreements with developing countries in 2009. These four countries had established them as major arms sellers for the developing world during the period 2002-09. In 2009, France made arms agreements of $7.1 billion with these countries. The United States has global arms sales competition with these European countries.
At present, some Asian countries have become arms sellers. For a decade from 1990, Russia was the main arms supplier to China. At present, India is purchasing a huge quantity of arms from Russia. Malaysia, Myanmar, Vietnam, and Indonesia have become new buyers from Russian arms sales market. In the yardstick of developing countries, Asia has become the second largest arms market in the world. During the period 2006-09, Russia was the highest sellers of arms of $17.7 billion to Asia followed by America with the sales of $16.8 billion.
Arms Buyers in Developing World
Saudi Arabia was the largest arms buyers among the developing countries during 2002-09. During the period they bought arms of $39.9 billion, which was 15.2 per cent of the total arms sales agreements in the developing world. In 2009, Brazil was the largest arms purchasing country with an agreement of $7.2 billion, whereas Venezuela was the second with a deal of $6.4 billion followed by Saudi Arabia with $4.3 billion. Among the top arms buying countries were five previous countries, three Asian and two Latin American countries.
Arms Smuggling and Terrorist Organizations
In 2002, arms smugglers gathered 5,000 AK-47 rifles from the Army stock of Yugoslavia and smuggled those to Liberia from Siberia in the guise of exchange with Nigeria. An aircraft brought from Ukraine was used in this work which was refueled in Libya on the way to its destination. In the same year, arms smugglers of West Africa in the guise of arms traders bought three thousand assault rifles and 2.5 million round bullets from the Nicaraguan government. The smugglers befooled the Nicaraguan government by saying that they are buying the arms for the Panamanian national police force. The smugglers sold the arms to the South America's black market instead of supplying those to the Panamanian police and the arms ultimately went to the hands of different terrorist organizations.
Such types of thousand incidents or events give birth to a billion dollar trade of small arms smugglers. And the huge profit from trade of theirs is putting the security of the world people at risk. In the present world, five million people lose lives every year to the use of $ 639 million small arms. Small arms are the first choice of all the armed forces -- from the government army to rebel force to terrorist outfit. The reason behind this choice is the easy availability of small arms worldwide, their dangerous power or strength and easy transportation.
The black market arms supply fuel to different regional conflicts in the world. In many cases, although the conflicts fade or end, the arms remain intact and those arms spread to the nearby countries. These arms go to the hands of terrorists if conflicts do not resurface or reemerge. The efforts to control small arms have not been that much successful. According to analysts, the network of small arms smugglers is spread across the world and is being nurtured under the shadow of globalization. Arms smuggling has now become a part of the global economy.
Most of the black market arms are first supplied legally, which later enter the black market. One of the main features of this system is supplying legal arms to different poor countries. The United Nations authority has ensured violation of ban on supplying arms to Angola and Liberia. The dishonest or wheeler-dealer government officials of arms producing and exporting countries are involved in this incident. The government officials of these countries gave license for importing these arms in exchange for a huge amount of money. After import, these arms go to the black market. Dishonest members of security forces of poor countries sometimes sell government arms to terrorist organizations.
Arms are looted sometimes during instable situation inside the country and go to the hands of or possession of the black market. In 1997, 500,000 arms were stolen from the national arsenal in Albania. These arms go to different terrorist organizations in the Balkan region. Many government arms go to other places by accident while being supplied from the United States to the Philippines. In this way, one million small arms are either stolen or gone missing every year. After buying many arms in one name from the countries where rules are slack in keeping arms individually, the arms runners sell those to other countries. These sorts of incidents happen among the United States, Mexico, and Canada.
Going beyond black market, arms these days have become a commodity of global shadow economy. The major commodities of this economy are narcotics, wood, diamond, rare animals and human beings. Such as; the illegal diamond trade has linked or engaged the Liberian and Togolese governments with arms smugglers or runners of Bulgaria, Ukraine, and Russia and the dealers of precious stones of Tel Aviv. Many terrorist organizations are linked with this trade network. They used to buy arms from the profit of other commodities.
People of different professions in various countries are engaged in the arms smugglers network. Such as; pilots of Belgium, Ukraine, and South Africa transport or ship illegal arms of East Europe to Africa and Afghanistan.
During the Cold War, different governments used individuals and arms traders in secret buying and selling of arms. Even after the end of the Cold War, this network remained intact, and the pipeline of the current smugglers is the outcome of that network.
At present, the Middle Eastern and African countries are the main market of illegal arms. The arms traders sell these arms by using forged documents or papers in the guise of legal trade. Civil wars and conflicts in different African countries are a big opportunity or advantage for arms smugglers. They supply arms to armed groups of different African countries, including Somalia, Sudan, Sierra Leone, and Congo. Many terrorist organizations of the world sometimes get arms directly from different countries. As there are allegations that Sudan, Syria and Iran provide arms help to different organizations, including Al-Qa'ida, Taliban, Hizballah, and HAMAS.
Worldwide Spread of Arms in Last Century
Basically the spread of military power is the inevitable result of social and economic progress in the global arena. In the last decade of the twentieth century, many non-Western countries collected or gathered modern and sophisticated arms and ammunition from the West. China and Israel themselves manufactured modern arms by their own ability. The United States in some areas or fields can show its military supremacy unilaterally in any place of the world with the help of Britain and France. In the post-Cold War period, the unparallel position of the United States in the field of military power in the world expedited the quest for attaining of nuclear power of the enemy or rival countries. In the post-Cold War world, Russia bought missiles and bombs after realizing the importance of nuclear arms in its defense system. The nuclear arms of Russia and China are capable of launching attacks on North America. North Korea, Pakistan and India are making their missiles modern to more modern and in some cases or areas; those missiles have already attained the capability of hitting targets. Terrorist activities are historically limited or confined with the week arms. But in the post-Second World war period, the use of sophisticated arms had started in terrorist activities. In the post-Cold War world, massive mass destructive arms had started to be amassed or gathered in the Islamic and Confucian states. China has been continuing transferring conventional and nonconventional arms to Muslim countries. In a secret place of Algerian desert, a powerful nuclear reactor has been established. Selling chemical arms to Libya, transferring or handing over high-powered missiles to Saudi Arabia through CSS-2, giving nuclear technology and materials to Iraq, Libya, Saudi Arabia, and North Korea as well as giving a huge quantity of conventional arms to Iraq. Keeping compatibility with the activities of China, North Korea is also supplying arms directly and indirectly to Middle Eastern countries.
From 1980 to 2011, Iran, Pakistan, and Iraq were the main buyers of Chinese manufactured arms. In 1989, a 10-yaer term agreement of mutual understanding between China and Pakistan was signed. In the agreement there were conditions for buying arms, production of arms, and joint research for development of arms, joint production of arms, transfer of technology and for selling arms to other countries on the basis of mutual consent of the two countries. In 1993, another arms agreement was signed between Pakistan and China. Within 1990, the horizon of military relations between Iran and China was broadened. In the eighties during the Iran-Iraq war, Iran got about 22 percent of its total arms supply from China and in 1989 China became Iran's largest arm supplying country.
In the 1980s, China supplied silkworm missiles to Iraq through North Korea. In 1993, North Korea supplied the Nordong missiles that could cross 600 miles to Iran. In 1992, China and Pakistan together started work of a nuclear related project. In 1991 after the fall of the then Soviet Union, the longest phase of the US economic progress had started. Clinton maintained an inflated US military budget. If it is converted to dollar it would be equivalent to the budget of the Cold War period which is one-third of the total military expenditure of the world. At present, the United States is the source of approximately half of the arms sales of the world. Russia and China had advanced toward the political and military path burying the conflicts during the Cold War. A number of agreements signed in 2001 gave a hint to that advancement of the two countries. From 1990s, China started to become the main arms buyer of Russia. At present, China gets some such sophisticated materials related to arms that were prohibited to be acquired for three decades.
Present Economics of Arms Sales
After the breakdown of then Soviet Union and the end of the Cold War, most of the countries tried to bring about radical changes to the defense departments. Although the flourish of the defense departments increased or geared up in the later part of the eighties, it was on a declining curve till the beginning of 1991. The trend of revving up militarization started in 1991 during the 'Operation Desert Storm' in Iraq. Then, the military expenditure of the United States declined in 1998. The same situation remained in the United Kingdom too. Except a slight increase in 1991, the military expenditure of the United Kingdom dropped to 23. 2 billion pounds from 30.8 billion pounds. Then the arms sales started to rise at the state level as well as individual level which is still prevailing. Almost the same situation exists in Russia and China too. These days, the military expenditure is increasing massively every year. If no changes happen to this current situation, the United States will spend $650 billion in the defense sector which would be 45 per cent of the total global military expenditure. After the United States, China is the next to spend in military sector followed by France, the United Kingdom, and Russia.
According to the statistics of Stockholm International Peace Research organization, prior to 2009, the military expenditure of the world was below $1.5 trillion, which was 2.4 per cent of the global average Gross Domestic Product. It means the military expenditure had gone up 45 per cent in the past 10 years. The military expenditure of the world had reached a stable situation after the end of the Cold War. Then, it again started to rise and currently the total military expenditure of the world is again going towards the Cold War period expenditure.
There are some commercial organizations in the United States that get directly benefited because of this increase in military expenditure. Simultaneously, 44 US arms manufacturers control more than 60 per cent arms sales of the world's top arms selling organizations. Among the arms and military materials or appliances, the demand for ambush protected arms equipped vehicles was the highest for use in Iraq and Afghanistan. After the Second World War, the US budget in the military sector has reached the highest level.

ASEAN-China Cooperation

Chinese Prime Minister Wen Jiabao's four-day visit to Southeast Asia has ended with success. In his separate meetings with Malaysian and Indonesian top politicians, all leaders had engaged in cordial and intensive communications and reached better mutual understanding and mutual respect. They had also relayed friendly and essential messages to each other. Given the time constraint, he was unable to cover more countries in his trip. However, it is believed that all Association of South East Nations (ASEAN) member states can feel the sincerity of the Chinese government.
The China-ASEAN Free Trade Area (CAFTA) has entered into its second year of implementation and in such a short period, it has made remarkable achievements. As the global economy is plagued by various turbulence and uncertainties, CAFTA has still managed to outperform other regions and maintain an impressive growth. We suppose Wen was impressed during his visit to this region. He will certainly establish more specific and feasible plans for the cooperation between China and ASEAN. Both the governments and private sectors of this region indeed look forward to it.
In the opening ceremony of the Boao Forum for Asia 2011 on 15 April, Chinese President Hu Jintao clearly indicated in his speech that China will strive to unleash the country's spending potential and increase its investment in Asia in addition to boosting its market potential in emerging economies.
Range of Flexibility
The members of CAFTA are virtually the direct targets of his pledge and they are in the forefront. Unleashing spending potential and enlarging investment in the Asian markets are actually the substance of the free trade agreement. Both parties of the free trade agreement will adhere to the agreement of zero or close-to-zero tariff in trade, service industry and investment, and this will naturally provide a wide range of flexibility. In the past one year, it has been proven that the exports of ASEAN countries have risen tremendously and new investment projects have emerged one after another in this region. Now China is going to take one step forward by unleashing its spending potential and enlarging its investment in Asia, it is not difficult to imagine the economic outlook and how it is going to benefit the development of various economies in this region. It is believed that Wen has brought a specific message in his trip to Southeast Asia. Are ASEAN countries ready to seize and fully utilize these opportunities?
Wen chose Malaysia, an ASEAN country that has close ties with China, and Indonesia, the current chair of ASEAN, as the destinations for his first foreign visit in 2011. His 30-hour activity-packed program in Malaysia and his policy speech in Indonesia have left profound impression in people's minds. This year marks the 20th anniversary of the dialogue relationship between ASEAN and China. The timing is commemorative while their success in maintaining such a good working relationship is also among the outstanding around the world. To be more precise, building and maintaining a good relationship and achieving regional economic integration within 20 years are results of highly effective works. With a population of 1.9 billion and $6 trillion Gross Domestic Product (GDP), the implementation of CAFTA will form the bedrock for the emergence of Asia. Is this not valuable?
Lack of Coordination and Unsustainability
CAFTA, which has started its operations for less than two years, is shouldering a tough and important mission of development. All basic member states of ASEAN are developing countries. Each of these economies are under tremendous pressure from the imbalance, lack of coordination and unsustainability in the face of their massive populations, inadequate resources and environmental challenges. They need to undergo tough tests in order to meet the standard and the best solution to overcome these problems is none but close cooperation with a sincere attitude.

The Chinese Government has stressed times and again that they will be 'a good neighbor and good partner to its neighboring countries forever.' Wen stressed to Indonesia, the biggest economy in ASEAN and also the current chair of the ASEAN, that 'We hope Indonesia can play an active and constructive role in the cooperation between China and ASEAN'. This is indeed a well-meaning bid.
12th Five-Year Plan
Investment is an instrument to vitalize economy and strengthen the ties between the two sides. As mentioned earlier, China has confirmed that it is going to increase its investment in Asia and emerging economies in international meetings. During his recent visit to Southeast Asia, Wen brought along the relevant issues or even investment projects that were already confirmed.
However, on the day Wen departed for his official visit, in the 5th Chinese Enterprises Outbound Investment Conference held in Beijing, a number of ministries and commissions under the National Development and Reform Commission announced that they will make joint efforts during the period of the 12th Five-Year Plan by supporting the corporate sector in matters related to finance, taxation, etc. They will amend the opening up strategy from emphasizing the inbound investment to coupling it with the outbound investment to expand the foundation for development. This measure is almost equivalent to a national policy package. It is noteworthy that ASEAN has an additional avenue to attract foreign investment following this development.
Wen Jiabao visited to Southeast Asia along with his concern over regional economic integration. His visit was well received and welcomed the various quarters. This is positive and meaningful to the 'emergence of Asia.' The continuously strengthened economic ties between China and ASEAN have become a valuable bedrock for the modernization of Southeast Asia.