Need To Know: June 28
India’s Surprisingly Good Economic News
Rural demand is buoying India’s economy, with Citigroup seeing bumper crops, a favorable monsoon and government handouts helping villages outpace urban areas.
Indicators like tractor, two-wheeler and fertilizer sales show villages are performing much better than towns and cities. Crucial because some 900 million Indians still live outside cities.
The rural unemployment rate has fallen from a peak of 26 percent in the first week of May to around 7.3 pecrent in the week ending June 21, which is near the pre-lockdown levels. In comparison, the jobless rate in cities is still above pre-lockdown levels at 11.2 percent, having been at 8.2 percent in February.
A few weeks ago, we reported on the dire situation facing small and medium sized businesses in India. A survey by the All India Manufacturers’ Organization (AIMO) said 35 percent of micro, small and medium enterprises, and 37 percent of self-employed individuals had started shutting their businesses, saying they see no chance of a recovery. India has about 65 million small and medium enterprises employing more than 150 million people, and about 130 million people are self-employed, so if the survey numbers are correct, the impact is devastating. That makes the news about rural areas even more welcome.
New Delhi last month announced U.S. $22 billion worth of stimulus measures to offset the Covid-19 shutdown. The world’s largest lockdown is set to push India’s economy toward its first contraction in more than four decades this year.
Of the measures announced, a provision of U.S. $2 billion, or equivalent to 1% of gross domestic product, was made to farmers through credit cards, Citi said. At least in rural areas, it appears the stimulus had the desired effect.
China Prepares To Be Cut-off from U.S. Dollar
A top Chinese financial regulator says Beijing is making preparations in case it gets cut off from the U.S. dollar payment system.
Fang Xinghai, a vice-chairman at the China Securities Regulatory Commission, said that since China mainly relies on the U.S. dollar payment system in international deals, its vulnerable to possible U.S. sanctions.
“Such things have already happened to many Russian businesses and financial institutions. We have to make preparations early — real preparations, not just psychological preparations,” Fang said at a forum organised by Chinese media outlet Caixin.
Fang did not specify what Beijing would do. Washington is pondering whether to use the U.S. dollar’s key role in international payment to punish Chinese individuals, companies and financial institutions over the imposition of a draconian national security law on Hong Kong that will essentially end legal freedom of speech and assembly in the city.
The U.S. dollar system, which is underpinned by SWIFT international payments, and the Clearing House Interbank Payments System (CHIPS), is the backbone for international trade and investment.
Beijing fears China will be treated the same way as Russia, which was excluded from those systems after its annexation of Crimea in 2014. The measures froze assets and prohibit transactions with specific Russian companies and individuals, restrict financial transactions with Russian firms, and ban certain exports that are used in oil and gas exploration or have possible military uses. Those 2014 U.S. sanctions were paired with similar measures from the European Union, which placed restrictions on business with Russia's financial, defense and energy sectors.
Russia's economy is still feeling the harsh impact, which coincided with a crash in global oil prices that cut deeply into revenues from the country's main export.