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S. Balakrishnan

Is it not high time that Europe, Japan, China and India boosted domestic demand, markets and internal growth engines?

THE US has been and is still the growth locomotive of the world.

The whole thing started with the economic success of post-war Germany and Japan followed by Hong Kong, Singapore, Taiwan and South Korea. Characteristically, Japan and the Asian tigers focused on exports — catering to the affluent markets of the US and Europe. In turn, they became attractive investment destinations for MNCs not only as production bases for shipping to the West but also to serve the growing regional markets.

The normalisation of economic relations of US with China brought a new and huge export engine into the global economic system. The Chinese soon dwarfed the Asian tigers and have now become even bigger than Japan as a supplier of goods to the US. Their US trade surplus is double than Japan's $70-80 billion.

While the exports of Japan, China and the Asian tigers are essentially manufactures, India has emerged as the prima donna in software. It is the undisputed IT leader among emerging economies.

In contrast to other Asian countries, India's growth strategy was inward-looking and gave less importance to trade and foreign investment possibilities. It paid the price with lower growth but escaped the Asian currency crisis of 1997 unscathed.

The global economic scene today presents a strange picture. Japan, Europe and Asia are all looking to the US to revive their economies. The most avidly watched statistics are America's. Others do not count for even half as much.

In a recent survey, The Economist states that as much as 60 per cent of global economic growth in recent years was US-driven. Not that all is rosy in the world's largest economy. It suffers from a chronic and structural current account deficit of over $400 billion. Its savings rate is the lowest in the developed world. It has a yawning Budget deficit thanks to the recent tax cuts, increasing Government, especially defence-related and falling tax revenues.

As the survey points out, the situation is fraught with high risks. Given the United States' dissaving, reflected in its twin deficits, there is every chance of a sharp fall in the dollar. If, as a result, foreigners pull out of US bonds, long-term interest rates will rise, threatening the very recovery that everyone wants.

Is it not high time that Europe, Japan, China and India boosted domestic demand, markets and internal growth engines? With bulging forex reserves, all these countries and economies can accommodate much more monetary and fiscal stimulus.

A more balanced pattern of demand and international trade will emerge instead of the entire global economy racking up positive trade with the US and helplessly pouring their reserves into US Government paper offering barely 1 per cent in the short-term and 3-4 per cent, medium and long-term. Are there not better profit opportunities in domestic economies? It would appear to be true at least of India.

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