Opinion

Can Obama beat recession?

J Srinivasan | Updated on November 07, 2012 Published on November 07, 2012

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Barack Obama remains in White House for four more years. Indeed, he is a brave man, considering the shape of the economy. The US is sitting on a staggering $16-trillion government debt. The US, it would seem, must willy nilly cut spending from 2013 and also raise taxes. A sure recipe for recession.

Can Obama not raise taxes and also put off spending cuts? He can but must get legislature support. This and the Fed keeping interest rates low as also agreeing to keep buying $40 billion worth of mortgage-backed securities (MBS) every month, may keep the economy ticking at the 1.5 per cent it has been doing.

Amid the gloom, the silver linings for the US economy have been the dip in the jobless rate and the rise of the dollar the last two years. The unemployment rate is down to 7.9 per cent, with jobs being added almost every month. And, since early 2011, the dollar has risen 7 per cent. But can Obama keep this momentum?

What’s in store for India from the Obama win? The dollar should strengthen which won’t augur too well for India and we must keep our fingers crossed that Obama does not act on the outsourcing rhetoric. That would be an uppercut and a punch in the solar plexus for the IT industry. Happily, despite the mild friction on reforms — after Obama said India was not moving fast enough on them —the trade ties between India and the US have strengthened, with the total merchandise trade hovering around $58 billion in 2011, making the US India’s No 3 trading partner.

It should also be a win-win on the diplomatic front. Generally fed up with Pakistan’s intransigence on dealing with terror, Obama and his team should gravitate closer to India. Washington may also find it useful to have New Delhi on its team as it takes on the task of managing the rising Beijing.

Published on November 07, 2012
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