Currency war

There is a growing consensus  that an unspoken currency war has broken out. Countries from Australia,  Japan, China, South Korea, Singapore, Thailand, New Zealand, Israel,  Sweden, Switzerland, Denmark, Norway &  to those that are part of the European Union are now  trying to  stabilize prices or gain competitiveness, simply by  easing the monetary policies  to weaken their currencies.

Many countries, earlier  used tools like  rate cuts,  quantitative easing ( QE)  or direct interventions on the  currency markets  to export deflationary problems to others and gain growth . With out much of success,   now they seems to  apply the other  mechanism available to generate demand  is  the  monetary policy.

But this is ultimately   a zero-sum game,  as someone gains only because someone else will lose.  A weak currency might provide a short-term boost to the countries engaging in currency devaluation. However, if everyone is playing the same game,  we will end up with  more and higher FX volatility. This in turn likely exact a toll on global trade and capital flows.

Shift to new base year lifts India GDP growth in FY14 to 6.9%

India  revised its  growth rate to  6.9 %  in 2013-14, almost 50 per cent higher than the 4.7 % estimated earlier.  The growth estimate was revised on account of  a  move  to adopt 2011-12 as the base year for computation of national incomes instead of   earlier base 2004-05.

India  has decided to adopt the international practice of presenting industry-wise estimates as ‘Gross value added at basic prices’ (GVA) instead of  GDP at  factor cost. With this move, ‘GDP at market prices’ will be the basis for ascertaining GDP.

The Centre had set a fiscal deficit target of 4.1 per cent of GDP for 2014-15 and achieving this target will not be much of a challenge now since  the GDP computation concept has been changed and also given that global oil prices have plummeted.

These latest numbers are likely to give more elbow room to the Finance Minister in the upcoming Budget and one can expect  spending to go up without the government dithering from its fiscal target.