Global Economic and
Financial Trajectory

Dharmlaabh – Blessings,

Today the world is facing disruption in almost every aspect of life. The bedrock principle which once
acted as canon is set to be redrafted. As the world is at the cusp of transformation, multiple forces are
activated to drive that towards their self-interests. India is also on guard and cautiously playing her
part. In this regard, I would like to share with you some of my ideas in the global economic domain.
Hope it would aid you in your strategic calculations.

Since colonisation, an era of economic expansion based on intensive industrialisation prevailed.
Initially, the currency, the electricity needed to run that industrialisation, was real. It was made of gold,
silver and precious metals, minted by private bankers. But as that era progressed, the need for free
liquid currency in high proportion too swelled. In order to cater to that need, an element of paper
currency was then introduced. This introduction brought the requisite thrust to expand the economies
multi-fold. The power of this paper currency was then mis-utilised during crises like in World War II. In
due course, post-World War II, to fuel the confidence in the paper currency, especially in the USD,
internationally Bretton Wood Agreement was agreed among countries. According to that agreement,
the US will back its greenback by adequate gold as a guarantee and other countries will back their
paper currency with USD. On 15 August 1971, the United States decided to suddenly and unilaterally
terminate the above agreement of convertibility of the US dollar to gold, effectively bringing the Bretton Wood system to an end and rendering the dollar a fiat currency. At the same time, many fixed
currencies (such as the pound sterling) also became free-floating. But even after endowing such a rude
shock, the blind confidence in USD continued to surge. In this manner, the USD established its status
as the global reserve currency.

This paper currency is the key trait of Modern Monetary Theory (MMT) which is adopted by each and
every economy of the world. The principles of MMT grant limitless opportunities of monetary
expansions, with only fallout being inflation which acts as a natural constraint. If a country possesses
adequate capability to manage the fall out of this expansion then the sky is the limit for growth. But
this theory ought to have few fundamental prerequisites in order to harness the desired benefits. The
first prerequisite is the necessity of continuous demand of a national currency in the international
currency market and the other one is the need for an established export oriented global order. Whilst,
in reality, such a scenario is possible only when the country’s currency enjoys the status of a global
reserve currency in such a global order. Today, US$ is that currency and consequently, US is that
country which enjoys seamless benefits of MMT.

Once the export oriented global order is in place and currency of a country achieves the status of the
global reserve currency, the windfall benefits of MMT starts raining in for that particular country. To
understand how the US unjustifiably enjoyed the benefits of MMT, we need to observe the paradoxes
in fiscal and monetary domain that occurs in the US economy. Few of them are enumerated below;

1) They enjoy huge monetary expansions without fear of corresponding increase in the inflation
rate – Normally if any country prints new notes and/or parallelly borrows for public spending, they
carry very high risk of inflation and they would be required to manage the inflation to keep it under
check. Whereas, if one observes, the US inspite of adopting to huge borrowings program and at times
also printing new notes; still, it could easily manage to contain the inflation rate well below two per
cent. At times FED bank had to strive hard to gain inflation target of two per cent.

2) They can resort to huge monetary expansions without fear of devaluation – Normally if any
country resorts to huge stimulus or monetary expansions, it has to bear the brunt in the form of
currency devaluation due to excess supply and low demand. Whereas, USD being a global reserve
currency, it enjoys benefits of continuous demand followed by increase in its value (exchange rate) irrespective of its monetary expansions.

3) Continuous demand for currency irrespective of high supply – Normally the supply of USD
remains high due to repeated monetary expansions or otherwise. Yet, contrary to general principles,
huge supply bears no negative impact on demand and prices.

4) The large number of lenders with huge appetite to lend irrespective of non-existent lucrative
interest rates.

5) Low saving rate yet huge investments – US has induced spending culture resulting in a lower
saving rate, resulting in lesser funds available for a mobilised investment opportunity. Yet one could
observe huge investments occurring in its various verticals across the country.

6) Huge external debt without any botheration for time-bound repayment or payment of interest
thereon – Since USD enjoys global confidence, the USD denominated treasury securities enjoy huge
demand even at the lowest interest rates. These treasury securities were favourite avenues for global
governments to park their forex reserves before the era of Sovereign-Funds evolved in 2015.

7) They could sustain huge deficit budgeting and trade deficit – Without being duly worried much
about the negative effects US could consistently sustain to go for huge deficit budgeting and huge
trade deficit.
All the above magic-like benefits of MMT are enjoyed by US since last century and prior to that by UK
with Pound sterling.

The status of reserve currency of USD paved the way for it to be used as a medium of exchange for
global trade. Being a medium of exchange, for global trade, USD has remained in huge demand. To
continue the same pattern, intensive globalisation was promoted. Promotion of globalisation, in turn,
resulted in extensive global trade of goods and services, people to people contact, immigration,
travelling and tourism etc. Globalisation penetrated to such an extent that many countries lost their
strategic autonomy and independence. All these measures kept the demand for USD high. Therefore,
the US and their allies are determined to maintain, promote and expand globalisation for their own
benefits. But today, that particular globalisation is experiencing unprecedented challenges and so is the supremacy of USD.

The Covid pandemic has hurt the very concept of the current globalisation and global trade. Fearing
uncertain nature and the unknown fate of the virus, people have almost stopped all sorts of cross
border transactions which are less essential. This changed behaviour has initiated the transformation
of inter-dependent and inter-penetrated globalisation into the globalisation for common issues of
concern for mankind. This led to deformation of the current globalisation which was mainly working in
the interest of Western economies. A decoupled world in the domain of trade and services will ensue
the world of self-reliant countries and a coupled world connected by technology will emerge.

If we observe the path of globalisation, we can see that multiple globalisations were parallelly
advancing at a varied pace. Namely 1) Goods and services globalisation 2) Financial globalisation and
3) Human Resource globalisation etc. Of all, as indicated above globalisation of goods, services and
finance which were of interest to the western world were driven at a faster pace. Whereas,
Human-Resource globalisation, which was in the interest of India and other Eastern countries were
shunted with visa regulations. With this pandemic, the Goods and Services globalisation has taken a
hit and Human Resource globalisation has no scope in near future. But financial globalisation is still
open and alive. Considering India’s contemporary comprehensive landscape, a bright scope emerges
from the surviving financial globalisation.

Globally, almost every advanced economy has granted stimulus to boost the economy and revive the
domestic demand. But due to uncertainty prevailing in the economy, those stimulated funds are stored
in cash, bank deposits, stocks, metals and currency substitutes etc. This idle currency, waiting for its
prospective profitable avenues may move cross border if an opportunity is visible. India with her
demography, her markets, skilled manpower, huge natural resources etc can act as a natural catalyst
for such funds. So as India moves on a promising developmental path and as the lucrative avenue for
investment opens up – the flow of FDI in India may start. Foreseeing the plausibility of cheap
investments, India’s Prime Minister Narendrabhai Modi and EAM Dr. Jaishankar have been trying to
woo the global industry to ramp up investments in India.

Though I have noted from certain indications that Indian government under Prime Minister
Narendrabhai Modi and Commerce ministry under yourself are well aware and vigilant about these facts, I would like to point out that before FDI starts flowing in, India needs to put in place a robust
legal framework to protect strategic sectors. The pandemic has taught us a hard lesson of maintaining
strategic autonomy at any cost. Further, India will have to decide as to which sectors are to be allowed
for FDI and up to what extent. The above decision can be taken considering the trend set by pandemic
induced revolution in globalisation, in technology and fourth generation industrialisation. Further, for
the sectors in which India welcomes FDI, one-stop window clearance system, required infrastructure,
ancillary service sectors, logistic support and labour laws etc may also be gradually developed.

As the new era unleashes its true colours, with a probable decline in dollar prices, currencies of other
countries will start strengthening making their exports less competitive and imports cheaper. This
trend will especially be faced by currencies of developing countries. Additionally, since the pandemic
has manifested the fallouts of dependence on the supply chain for economic development, the idea of
self-reliance is in vogue. This contemporary mood may be further accelerated with values of
nationalism and independence. Internationally, China’s behaviour post-pandemic is an additional thrust
to such an order. Therefore, the currency dynamics and psychological state both indicate a natural path
for the future in Aatmanirbharta. Focusing on domestic consumption will mean markets will make
available to citizens all such goods which were only meant for exports till date. This will in turn raise
the standard and quality of living and help alleviate the poverty of Indian population. As indicated by
President Xi, the mantra for China’s future planning is going to be inward and domestic, same holds
true for India too.

It is possible that you may be aware of the entire above narrative, but out of my extreme concern for
the Indian Economy especially the well-being of Indian population which has been victim of western
exploitation since long, I have alluded certain important issues to you. Finally, I would like to indicate
that, ever since the age of globalisation flourished, the cross-border trade and transactions also
flourished, but the common medium of exchange viz. the currencies are being mis-valued, the scope
of exploitation and drainage existed, that too invisibly. To be part of the global supply chain, the
developing countries were forced to earn forex by promoting exports. To make export competitive,
developing countries continuously devalued it’s currency, making their respective currencies
undervalued. USD on the other hand, as a global reserve currency remained overvalued, allowing the
US to import global goods at a very cheap rate. Thus, resulting in the invisible drainage of labour and other resources of the developing countries.

The above phenomenon of drainage along with other factors was observed by the US-based Global
Financial Integrity (GFI) and the Centre for Applied Research at the Norwegian School of Economics
and they published some fascinating data. They tallied up all of the financial resources that get
transferred between rich countries and poor countries each year: not just aid, foreign investment and
trade flows (as previous studies have done) but also non-financial transfers such as debt cancellation,
unrequited transfers like workers’ remittances, and unrecorded capital flight. As far as I am aware, it is
the most comprehensive assessment of resource transfers ever undertaken. They observed that flow
of money from rich countries to poor countries pales in comparison to the flow that runs in the other
direction.

In 2012, the last year of recorded data, developing countries received a total of $1.3tn, including all
aid, investment, and income from abroad. But that same year some $3.3tn flowed out of them. In other
words, developing countries sent $2tn more to the rest of the world than they received. If we look at
all the past years since 1980, these net outflows add up to an eye-popping total of $16.3tn – that’s how
much money has been drained out of the global south over the past few decades.

Similarly, the FDI and FPI funds are of the same creed. FPI is said to be hot money which comes in a
flash, takes the benefit of current market trends and retreats with profits. FDI too easily flows into
developing countries, exploits resources, encashes huge markets and drains hefty profits resulting into
yet another form of drainage, making a poor country poorer and a rich country richer. Therefore, as far
as India is concerned, only when FDI along with technology transfers which advances the Indian
philosophy of Atmanirbharta, may be promoted. Same ideology may be applied for export and import
policies. Those exports which ultimately drain India may be stopped and only those imports be allowed
which supports in Atmanirbharta and is necessary for technological revolution.

Now when the world is in uncertainty and the status of USD is slated to be challenged, India and the
developing world has got an unprecedented opportunity to stop this vicious circle. India, now needs
to tread with precaution, irrespective of any currency that remains as a reserve currency, India should
not slide into such a phenomenon. Any trade deal inducing India towards that path be avoided. You
and your ministry are in the key position here to turn this tide away from India.

India, since ages, is revered as ‘Arya Desh’ and as a birth place of multiple spiritual religions. Amongst
many religions, as you are aware Jain religion is the cornerstone of spirituality. I hope that, India may
use this spirituality as soft power to propagate Sadachar and good Sanskaar at global level. The rise
and expansion of such spirituality of all religions of India may ultimately lead to the all around
development and progress of India and the world at large. With this noble intention I have shared with
you my above ideas.

Wish you and your team Shubh Mangal Kamna, to be an important element in a historic transformation
of India.

Dharmlaabh