Telangana seeks sector-centric fund allocation at NITI meet
Telangana Chief Minister K. Chandrasekhar Rao has sought a change of policy in the allocation of funds by the Centre from the existing scheme-specific to sector-centric at the first meeting of the National Institution for Transforming India (NITI) Aayog chaired by the Prime Minister Narendra Modi in Delhi on Sunday.
Mr. Rao sought the change by explaining that the scheme-specific fund allocation was leading to discrimination in availing Central funds by some States, whose requirements were elsewhere in the same sector than in the scheme specified by the Centre.
Sources told The Hindu that Mr. Rao had cited the examples of the Centre’s fund allocation for schemes to fight tuberculosis and to improve enrolment of children in schools by opening new schools.
The Chief Minister told the meeting that the incidence of TB was not rampant in Telangana and funds were required in other areas of health sector such as fighting viral fevers and some seasonal communicable diseases. Similarly, in school education, the State’s stress was on improving the quality of education and not enrolment, he said.
As the Chief Ministers were given only three minutes each at the NITI Aayog meeting, the presentation of Mr. Chandrasekhar Rao too was short, the sources said adding that he had explained several welfare schemes initiated by the State government including enhanced social security pensions, enhanced quota of rice at Re. 1-a-kg, financial assistance for marriages of girls in poor families of SC, ST and minority communities.
Along with several other Chief Ministers, Mr. Rao had sought continuation of all the existing 66 Centrally-sponsored schemes and devolution of funds for such schemes in single instalment. He offered to participate in the Prime Minister’s “Make in India” programme by encouraging manufacturing sector with the help of new industrial policy unveiled by the State recently.
Scheme-specific fund allocation is leading to discrimination in availing Central funds by some States, whose requirements are elsewhere than in the scheme specified by the Centre
K. Chandrasekhar Rao,Telangana CM
No change in n-liability law: MEA
U.S. suppliers of nuclear reactors and parts will not be directly liable in case of a nuclear accident, nor can they be sued by Indian nuclear operators unless the contract they sign clearly states it, the government said on Sunday.
As The Hindu had reported in early January, the government has assured the U.S. and other suppliers that their liability would be paid out of an “insurance pool” of approximately $250 million (Rs.1,500 crore), to be funded equally by the government and the government-owned insurance companies.
Clarifying the government’s position on a series of issues surrounding the India-U.S. civilian agreement two weeks after President Barack Obama and Prime Minister Narendra Modi announced a “breakthrough,” the Ministry of External Affairs was categorical that there would be no change in the Civil Liability for Nuclear Damages Act (CLND 2010). The clarifications were part of a memorandum handed over by India to U.S. officials on Friday.
Doval, Yang work on formulations to resolve boundary row
The positive interaction between China and India is increasing, says Yang
Within days of a substantial dialogue at the Foreign Minister level, India’s National Security Adviser Ajit Doval and China’s State Councillor Yang Jiechi, have met in Munich — their talks focusing on ways to resolve the Sino-Indian border issue — ahead of Prime Minister Narendra Modi’s visit to China in May.
The meeting in Munich precedes the visit to Beijing by Mr. Doval — India’s Special Representative for the boundary issue — ahead of Mr. Modi’s visit. Mr. Yang is Mr. Doval’s counterpart in the boundary talks.
“The positive interaction between China and India is increasing and their momentum of cooperation is improving,” said Mr. Yang, as quoted by Xinhua.
Both officials appeared to work on formulations that could lead to the resolution of the Sino-Indian border row — an impediment to a possible surge in New Delhi-Beijing economic partnership and the convergence of a strategic agenda in the Asia-Pacific.
The Xinhua report said Mr. Yang proposed that the two countries should “push forward negotiations over boundaries, and to effectively maintain the peace and safety of border areas” in tune with respecting and looking after each other’s concerns.
According to the Chinese interpretation, Mr. Doval observed that India “expected to intensify coordination with China and keep pushing forward the process of negotiations over boundaries.”
Call to seize chances
Apart from calling for an acceleration of boundary talks, the Chinese State Councillor advocated that the frequency of high-level interaction between the two countries should be stepped up.
“Both sides should seize the opportunities, remove the disturbances, and strengthen the positive trend of China-India relations,” Mr. Yang observed.
The two officials chose their words carefully to suggest that their worldviews were acquiring a common vocabulary. They focused on their status as the fastest growing developing countries as well as having a common Asia heritage, resonating a video message sent last Monday, by Mr. Modi, calling for a Sino-Indian partnership that would yield the rise of “an Asian Century.”
Mr. Doval said that Sino-Indian ties had improved after the formation of the new government, opening up a number of “mutually beneficial cooperation opportunities.”
During the Munich meeting, Mr. Yang pointed out that cooperation “in culture, railway and industrial parks construction should be broadened.”
The Chinese official was reiterating remarks by Chinese President Xi Jinping, who had told visiting External Affairs Minister Sushma Swaraj that, “China and India should continue their cooperation in various fields, including industrial parks and the railway project, to benefit the 2.5 billion people of the two countries and the global economy.”
The Chinese official stressed that India should work with China in promoting “multipolarism” — echoing a pet theme, chiefly advocated by Beijing and Moscow, that the end of a unipolar era led by the United States after the collapse of the Soviet Union would establish a more sustainable international system.
‘Sino-Indian ties have improved after the formation of the new government’
‘Indian trawlers back in huge numbers’
‘Earlier Sri Lankan Navy acted promptly, but now they are reluctant to arrest the poaching Indian fishermen’
More Indian trawlers have been allegedly fishing near the northern coastline of Sri Lanka over the past two weeks, Jaffna-based fisher leaders say.
The fishermen from both sides got into a tussle at sea recently, after the nets of those from the northern region of the island nation were damaged. “There was a major problem in Vadamarachchi a couple of days ago when our nets had been damaged by the Indian trawlers,” said Josephpillai Sinthathurai, a fisherman based in Madagal in northern Jaffna.
“Earlier, the [Sri Lankan] Navy took action promptly, but now they seem reluctant to arrest Indian fishermen who are poaching,” he said. When contacted, Navy spokesperson Kosala Warnakulasooriya said: “We received no such complaint from the fishermen.”
In the past few days, northern fishermen suffered damages ranging from Sri Lankan rupees 75,000 to 1 lakh, Mr. Sinthathurai said. “Most of us have already borrowed heavily to make ends meet. With the unceasing problem of Indian trawlers poaching in our waters, our livelihoods have been badly hit,” he said.
The fisherfolk are helpless as the Navy is silent, says Nataraja Rathnaraja, a fisher cooperative leader in Mayilitythurai in the Jaffna peninsula.
Fishermen attributed the Navy’s “inaction” to the high-level bilateral visits coming up in the two countries. Sri Lankan President Maithripala Sirisena is scheduled to visit India from February 15 to 17, while Prime Minister Narendra Modi is likely to visit Sri Lanka in mid-March. The Sri Lankan side is also working on releasing the 87 Indian trawlers in its custody. The trawlers are expected to be released in the coming week, ahead of the President’s visit.Officials in decision-making circles in Colombo toldThe Hindu , on condition of anonymity, that they would be lenient on Indian fishermen found poaching, considering the upcoming high-level visits aimed at improving relations between India and Sri Lanka. No official complaint about Indian trawlers fishing in Sri Lankan waters has so far been made to the Indian High Commission in Colombo.
Follow up on peace moves with neighbours: President
Pranab’s speech seen as a direct signal to resume dialogue with Pakistan
The government must “follow through” on initiatives made in the neighbourhood, President Pranab Mukherjee said on Sunday while addressing India’s ambassadors and high commissioners who head India’s missions abroad.
Stating that Prime Minister Narendra Modi’s decision to invite the SAARC leadership for his swearing-in had “demonstrated dynamism and bold leadership”, the President said it must be “followed through to its logical conclusion through incisive diplomacy.” Without directly referring to tensions with Pakistan and China, Mr. Mukherjee also told the envoys at the Heads of Mission conference that “a strong message was conveyed to our neighbours that the region must decide whether to live in perpetual tension or understanding.”
Significantly, the President stressed more than once on the need to go ahead with diplomacy in the neighbourhood. “Our initiatives in the neighbourhood must be followed up with concrete steps to consolidate and make permanent the advances we make in our relations,” he added.
The President’s speech is seen as a direct signal urging the government to resume dialogue initiatives with Pakistan, while also urging it to keep its promises with regard to Bangladesh, Nepal and Bhutan. Despite a commitment to clear the land boundary agreement with Bangladesh in the winter session of Parliament, the government had not been able to bring it to vote because of repeated disruptions in Parliament, and officials say it will now come up in the Budget session this month.
Commending the government for “vigour and dynamism” in India’s foreign policy, Mr. Mukhejee called U.S. President Barack Obama’s Republic Day visit as one of “substantive importance and not just symbolic.”
“We also had visits by President Putin of Russia and President Xi Jinping of China recently. The Prime Minister has been personally reaching out to the Indian diaspora,” according to a statement issued by the President’s Office. Mr. Mukherjee also spoke of global terrorism as the most important challenge to be addressed, the statement added.
Recollecting his own experience as External Affairs Minister, the President told the envoys that having worked with many generations of Foreign Service officers, he was aware that the job of a Head of Mission was not easy. He recalled the role played by Missions during evacuation of Indian citizens from foreign countries affected by war and turmoil and pointed out that Indian Missions had extended assistance to even people from neighbouring countries on such occasions.
Pranab’s speech seen as a direct signal to resume dialogue with Pakistan
Manjhi seeks to expand Cabinet, rally MLAs
A day after he refused to step down as Bihar Chief Minister, Jitan Ram Manjhi said, “I will speak to the Governor in the next two days to expand the Cabinet.”
Speaking to the press after meeting Prime Minister Narendra Modi, he said, “I have asked PM Modi to help us sort out the crisis in Bihar.”
The BJP which will make its first bid for power in the State, wants the Dalit votes that Mr. Manjhi can influence, but is wary of the baggage of misgovernance that he carries. Moreover, the party is yet to make sense of the impact of its decision to field an outsider Kiran Bedi as CM candidate in the Delhi Assembly elections last week. Mr. Manjhi’s strategy is to woo as many JD(U) MLAs as possible, by offering ministerial positions and then seal a deal with the BJP. The Chief Minister also said he would seek the support of the RJD. A Manjhi supporter claimed that his faction had the support of 26 JD(U) MLAs so far. The RJD has 24, the Congress five and the CPI has one MLA supporting the Nitish Kumar faction of the JD(U), which claimed to have the support of 97 party legislators. In the current 233-member Assembly (10 seats are vacant), a party needs 117 MLAs to prove majority.
The BJP has 87 members. Speaker Uday Narayan Chaudhury on Sunday recognised Nitish Kumar as JD(U) Legislature Party leader after the legislature party elected him to replace Mr Manjhi.
Mr. Kumar and RJD chief Lalu Prasad are expected to meet the Governor on Monday. West Bengal Governor Keshari Nath Tripathi, who is in-charge of Bihar, is likely to reach Patna on Monday morning. Mr. Nitish Kumar has asked legislators of his faction to remain in the State capital on Monday “in all circumstances.” JD(U) sources said they feared Mr. Tripathi, a BJP nominee, might not be impartial and a march of the MLAs to the Governor’s residence may be on the cards.
Meanwhile, leaders of the rival JD(U) factions have started trading charges on putting pressure on their MLAs to get their support in the power tussle.
Former minister and JD(U) MLA of the Nitish camp, Bima Bharti, on Sunday lodged a police complaint against two Manjhi camp MLAs — Vinay Bihari and Sumit Singh — for allegedly threatening her. “They were putting pressure and issuing threat to support Jitan Ram Manjhi … but I don’t fear anyone,” said Ms. Bharti. Both the MLAs have denied the charge saying Ms. Bharti must be “under pressure” from somewhere else to level charges against them.
Bengaluru, Chennai share water problems
A.R. Shivakumar, a scientist from the Karnataka State Council for Science and Technology, Indian Institute of Science, said he believes that half of the installed borewells in Bengaluru city have stopped yielding water. “Unless rainwater harvesting is followed in a big way, water will be hard to come by in Bengaluru,” he said at a workshop on lakes held on Saturday.
Researcher T.V. Ramachandra, from the Centre for Ecological Sciences at the Indian Institute of Science, had in a research paper pointed out that “the visualised outcome for 2020 indicates certain doomsday for Bangalore city with the current lopsided approaches in urban planning.”
He had then concluded on a grim note: “This will lead to further changes in the regional climate; enhanced pollutants in air and water, increase of temperature, consequent thriving of disease vectors and loss of vital natural resources.”
Raj Cherubal, Director (Projects), Chennai City Connect, described as a platform for industry associations and civic organisations, listed flooding and shrinking of water bodies as top issues for Chennai. Then, “there are several poor people living near the river banks. We need to figure out what are the alternatives available for them,” he said.
Mr. Cherubal said: “Every city has gone through something bitter and then change. Great cities globally were bad and had dirty river moving through and then they changed. So, Chennai is not facing something new now.”
Chennai, Bengaluru and Surat all find a place on the list of top 10 metropolitan areas in India by population. But why do only they find a place on the Resilient Cities list from India? It isn’t as if the other Indian cities were free from the problems of rapid urbanisation.
For getting in, cities need to apply, and then a panel of judges has to review those applications. And what the panel is looking for, as the project’s FAQ section puts it, are “innovative mayors, a recent catalyst for change, a history of building partnerships” and an ability to work with a wide range of stakeholders.
There is no timeline for the project, said a Chennai Corporation official, who wished anonymity. The official said at a recent council meeting that the details of this project were submitted to the State government, whose approval is needed for work to start.
Rushdie hits back at Nemade
Writer Salman Rushdie has lashed out at Jnanpith award-winning Marathi writer Bhalchandra Nemade for his comment that Rushdie’s works lacked literary merit.
Shortly after being chosen for the prestigious Jnanpith award on Friday, Mr. Nemade made the remarks at a felicitation programme organised by the Matrubhasha Samvardhan Sabha in Mumbai. He dismissed the works of Mr. Rushdie and V.S. Naipaul as “pandering to the West.” Mr. Rushdie’s works after Midnight’s Children lacked literary merit, he said.
Responding to the criticism, Mr. Rushdie tweeted on Saturday, “Grumpy old ….. Just take your prize and say thank you nicely. I doubt you’ve even read the work you attack.”
Known to be a proponent of “nativism,” which endorses an author writing in native language and a world view that negates globalisation, Mr. Nemade had described English as a “killer language” and said the primary and secondary education should be in the mother tongue. “What is so great about English? There isn’t a single epic in the language. We have 10 epics in the Mahabharata itself. Don’t make English compulsory, make its elimination compulsory,” he was quoted as saying at the felicitation.
Mr. Nemade himself taught English and comparative language at different universities and retired from the Gurudeo Tagore Chair of English at the Mumbai University.
“I doubt you’ve even read the work you attack”
India to deploy global calculator to study climate impact
Nearly 20 nations, including India, will deploy a global calculator, similar to those launched in London and Beijing last week, to calculate climate impact scenarios in their territories. Some have already developed the calculator and others are in the process of creating their own versions of it.
Showcasing the calculator at the Delhi Sustainable Development Summit on Wednesday, Laura Aylett of the U.K. Department of Energy and Climate Change (DECC) said it was a free, open-source interactive tool to help assess climate change scenarios over a period and make changes in lifestyle.
The calculator could illustrate climate impacts based on different choices and was linked to the latest Intergovernmental Panel on Climate Change (IPCC) reports.
Three principles
She said the idea was to introduce three main principles in calculating the impacts of climate change: transparency, collaboration and simplicity. The calculator could look at transport efficiency, renewable energy, crop yields and forests, but the world obviously needed to change the way it powered its lifestyle.
Radical move
She said the world could have good living standards if green technology was taken seriously. “We need a radical move to low-carbon electricity and should allow forests to regenerate. Businesses and government, apart from schools and universities, are using this tool [calculator], and some countries and cities are developing their own specific tools as well.”
While experts had access to climate models, the general public found it difficult to use them to envisage scenarios. The calculator opened up possibilities for a larger audience. A team, which included the DECC, developed the online tool at a little under £1 million. Ms. Aylett said the calculator in Excel format could be used by policymakers, companies, governments and even schoolchildren.She said India was among the first countries to develop its own tool to assess energy security under the aegis of the former Planning Commission, which was launched last year.
New version for India
A newer version of the Indian Energy Security Scenarios (IESS) would be out soon. The tool was an improved version, which looked at all options in India, including emissions while calculating scenarios.
Colombia had developed a country calculator to present its Intended Nationally Determined Contributions (INDC) later this year before the climate change talks at Paris. The calculator allowed for the use of temperature as a factor, but could not, however, make calculations based on how much developed countries needed to do or pay. However, it could be a reference point for country-level calculations and was a flexible tool, said Ritu Mathur, from The Energy and Resources Institute. Eleven countries, including India, were using this tool and nine more were preparing their own versions.
Double import duty on Chinese goods: plastic industry
Ahead of the Union Budget, plastic manufacturers have urged the Centre to double the import duty on Chinese goods from five per cent to boost domestic industry.
Over a series of meetings with the Central authorities in the past three months, the All India Plastics Manufacturers’ Association (AIPMA) also demanded a reduction in excise duty and implementation of the Goods and Services Tax (GST).
“The imports are going haywire. We are unable to compete. The government agrees in principle to our request for increasing the duty,” Arvind Mehta, chairman of AIPMA’s governing council, said at a press conference here on Sunday.
To a question on environmental pollution concerns, Rituraj Gupta, president of the association, pointed to a lack of strict laws for segregation of plastic for recycling.
“The littering habit of people is the cause for pollution, not plastic per se . The polluting carry bags constitute just one per cent of the industry’s output,” Mr. Gupta said.
Four-way Ukraine summit planned
French, German and Ukrainian leaders could meet Russian President Putin
French, German and Ukrainian leaders are planning a summit with Russian President Vladimir Putin for Wednesday in a frantic bid to halt escalating bloodshed in east Ukraine.
The four leaders talked by phone on Sunday as part of urgent efforts to achieve a “comprehensive settlement” in the conflict between Ukrainian forces and pro-Russian rebels, Berlin said.
Frantic diplomacy
German Chancellor Angela Merkel and French President Francois Hollande have been carrying out frantic diplomacy in recent days, jetting to Kiev for talks with Ukrainian President Petro Poroshenko and to Moscow to meet Mr. Putin, accused by the West of masterminding the 10-month-old conflict.
Mr. Putin said the summit planned in the Belarussian capital Minsk would only take place if the leaders agreed on a “number of points” by then.
“We will be aiming for Wednesday, if by that time we manage to agree on a number of points which we’ve been intensely discussing lately,” Mr. Putin told Belarus President Alexander Lukashenko.
Foreign ministry officials will hold preparatory talks in Berlin on Monday, Ukraine said, when Ms. Merkel meets U.S. President Barack Obama at the White House.
A meeting between mediators from the Organization for Security and Co-operation in Europe (OSCE), Ukrainian and Russian representatives and the rebels is also expected to take place Tuesday, Ukraine’s presidency said.
During the latest push to keep peace hopes alive, the leaders “continued to work on a package of measures to achieve a comprehensive settlement of the conflict in eastern Ukraine,” Berlin said of Sunday’s phone conversation about what Mr. Hollande has called “one of the last chances” for peace.
Unconditional ceasefire
The Ukrainian presidency said the leaders “expect that their efforts during the Minsk meeting will lead to an immediate and unconditional bilateral ceasefire”.
Fresh fighting in the former Soviet republic claimed 12 civilian lives, separatist and Kiev authorities said, with 12 Ukrainian troops also killed in the last 24 hours.
A previous peace deal agreed in Minsk in September has since been largely ignored, with fighting escalating in recent weeks and the Ukraine government accusing the rebels of massing troops for fresh offensives.
Court rules GCHQ snooping ‘illegal’
A recent ruling by the United Kingdom’s Investigatory Powers Tribunal (IPT) has confirmed that British intelligence services acted unlawfully in accessing the personal digital communications of millions of people collected by the National Security Agency (NSA) of the United States.
This ruling has been hailed by transparency and human rights groups as a major victory for their cause, not least because it a first by the IPT on the affairs of the country’s intelligence and security services represented by the GHCQ, MI5 and MI6.
A powerful precedent
The IPT is the only court that investigates and determines complaints of unlawful use of convert techniques by public authorities that violate the privacy and human rights of citizens.
While a ruling by the IPT does not impose any specific punishment on the guilty, the naming and shaming of the intelligence agencies that have remained tight-lipped about the extent of mass surveillance sets a powerful precedent for future rulings in courts not just in the U.K., but elsewhere too.
The claimants in this case are Privacy International, Bytes for All, Liberty and Amnesty International. The groups will now ask the court to confirm whether their communications were unlawfully collected prior to December 2014 and, if so, demand their immediate deletion.
The Tribunal order states that intelligence sharing between the U.S. and U.K. was unlawful prior to December 2014.
The U.K. had access to the NSA’s PRISM and UPSTREAM programmes, known only after NSA whistleblower Edward Snowden put documents relating to the NSA-GCHQ relationship into the public domain.
“This ruling is significant because it is the first time that the GCHQ have been held accountable for their action,” Mark Rispoli, a spokesperson for Privacy International told The Hindu .
Equally importantly, the ruling vindicates Edward Snowden’s actions. “Since the Snowden revelations of June 2013, there have been questions on whether or not his actions were right. The IPT ruling vindicates his decision to blow the whistle on the NSA.” Mr. Rispoli said.
Sets a powerful precedent for future rulings on intelligence agencies
N. Korea fires short range missiles
North Korea test fired five short-range missiles into the sea off its east coast on Sunday, raising cross-border tensions ahead of Seoul’s planned joint army drills with the U.S.
The North fired the missiles into the East Sea (Sea of Japan) from its eastern city of Wonsan between 4:20-5:10 p.m., (0720-0810 GMT) Seoul’s defence ministry spokesman told AFP.
On Saturday, the North said it had test-fired an “ultra-precision” anti-ship rocket, which will be deployed across its navy “before long”.
Rising global debt, a scary sign
The ratio of total debt to economic output has declined in only a few countries
Here are two things we know about how debt affects the economy.
First, in the abstract it doesn’t matter. For every debtor there is a creditor, and, in theory, an economy should be able to hum along just fine whether a country’s citizens have a great deal of debt or none. A company’s ability to produce things depends on the workers and machines it employs, not the composition of its balance sheet, and the same can be said of nations.
Second, in practice this is completely wrong, and debt plays an outsize role in creating boom-bust cycles across the world and through history. High debt increases the amplitude of economic swings. To think of it in terms of the corporate metaphor, high reliance on borrowed money may not affect a company’s level of output in theory, but makes it a great deal more vulnerable to bankruptcy.
That’s what makes a new report from McKinsey, the global consulting firm, sobering. Researchers compiled data on the full range of debt that countries owe - not just their governments, but corporations, banks and households, as well. The results: Since the start of the global financial crisis at the end of 2007, the total debt worldwide has risen by $57 trillion, rising to 286 per cent of global economic output from 269 per cent.
Combining these different types of debt is useful because it creates a richer picture of how a country’s finances really work. As we learned during the financial crisis, a country with high debt levels can get into economic trouble regardless of whether its debts are most heavily owed by the government (Greece, Italy), households (Spain, the U.S.), or financial institutions (Ireland, Britain).
The ratio of total debt to economic output has declined in only a handful of smaller countries, such as Romania, Saudi Arabia and Israel. In all of the world’s economic powerhouses, total debt has risen. While some of the places with the steepest increases are European countries that were enmeshed in that continents debt crisis, Ireland, Greece and Portugal with Spain and Italy just behind others are a bit more surprising.
Two Asian giants
Indeed, two Asian giants that were only modestly affected by the last crisis are in this group. China has seen its ratio of debt to economic output rise by a whopping 83 percentage points since 2007, according to the calculations by the McKinsey Global Institute, to 217 per cent of GDP, with increases in government, corporate, and household debt.
So far, the Chinese government has skilfully managed a slowdown in economic growth, and there are signs of a housing boom reaching its end. Whether it will be able to avoid a sharper correction is one of the great questions hanging over the global economy.
Then there is Japan, the most indebted country in the world, at 400 per cent of GDP. Debt is up 64 percentage points since 2007. Its fiscal challenges are almost entirely from government debt, and they long predate the financial crisis. Its borrowing costs remain astoundingly low, reflecting ultra-low inflation and strong domestic demand for Japanese government bonds. But it is hard to look at the balance sheet of the worlds third-largest economy and not wonder how this can end well.
Meanwhile, the McKinsey report can be read as giving a largely positive assessment of the U.S. While total debt for the real economy is up by 16 percentage points in the U.S.to 233 per cent of GDP, household debt is actually down by 18 percentage points and corporate debt by 2 percentage points.
A rise in public debt since 2007, in other words, largely offset declines in private-sector debt.
And perhaps most promising for the U.S., our financial institutions have become significantly less leveraged, with financial-sector debt falling by 24 percentage points of GDP by McKinseys calculations.
One bright spot in our research is progress in financial sector deleveraging, write Richard Dobbs and three co-authors. Financial-sector debt relative to GDP has declined in the U.S. and a few other crisis countries, and has stabilised in other advanced economies. At the same time, banks have raised capital and reduced leverage.
Still, if you accept our starting premise that high debt, whether public or private, makes economies more vulnerable to economic shocks and tends to fuel booms and busts, the report offers plenty to worry about.
The McKinsey researchers propose a few policy changes that might reduce the inexorable shift toward greater debt or at least reduce its potential to throw economies into chaos.
An example of the former: Reduce tax incentives for debt, such as the home mortgage interest tax deduction or the tax deductibility of corporate interest payments. An example of the latter: Create more ways for countries to restructure sovereign debt, such as clauses in newly-issued bonds that compel bondholders to accept majority votes on restructurings.
But the solutions they offer are big policy changes that would happen only glacially. The reality that economic policy-makers around the world must grapple with, especially those in China and Japan, is that eight years after a financial crisis brought on by high debt, we may not have learned as much as we would like to think we have. — New York Times News Service
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