De-Lurking on the Net

May 4, 2012

Realigning Currencies and Bringing the Jobs Back to West

Filed under: Europe,India,USA,World — Geekay @ 10:12 pm
Tags: , , , , , , , , ,

There was an article in Washington post , Promise of U.S.-India economic partnership remains unfulfilled. It talked about how India is not helping US back on number of fronts . It criticised India for backdating taxation to tax back the purchase of an Indian Company by Vodafone, not opening its markets for giants like Walmart, not sufficiently protecting the patents of pharmaceuticals companies by issuing a compulsory license to manufacture locally, not buying the fighter aeroplane from US and making nuclear deals with Russia, not supporting US sufficiently on Iran sanctions or supporting US stand on Libya, Syria etc. So, the list is pretty long on American disappointments.

The Rafale fighter

Image: The Rafale fighter

Assessing Indian Stalemate – Retail, Defense Deals etc

But should the American worries hinge on India so much. Main thing in election year is to demonstrate to the voters that presidential candidates have the deep seated concern of bringing the lost jobs back from other countries including India and China. It is no surprise that The US business lobby wants both things – the retail market of India (WalMart etc) and continuous cost reductions (sourcing the cheap brainpower from India as the IT companies do – IBM, Microsoft etc) and other cheap items from China etc. But should not the article be focusing on bringing down the cost in stead of focusing on India. Perhaps then, it would not have appealed to anyone. The US public along with the west is in the same boat as jobs are gone and business leaders merely focus on bringing down the cost and not on creating jobs. The businesses are nimble enough to move from country to country basing it on just taxation and the cost of doing business in that country. Even if Walmart, Tesco had got the deal in India – It would not have created many jobs in US, UK etc. The defense deals like Rafaele, F-16 or Eurofighters etc is only one off deals. The jobs last only until the deal is fulfilled. It does not guarantee continuous supply of jobs. However, if the technology is transferred in a particular area (as military, nuclear, industrial, agriculture etc ) then not only it can guarantee a long term deal in experts transfers but it also gives a chance of  joint-ownership in a company which can be based in this case to a country like India where technology is transferred. Some of the work could take place in west, some in technology recipient country .But it is abundantly clear that cost base in the long term between east and west can not stay so wide apart as it is at present. The costs include wages, transport, land, electricity and other inputs . The west is getting beaten virtually on each input cost item.

India offers plenty of opportunities not only on big ticket items like a fighter aircraft but it requires number of high tech items in military hardware as it depends heavily upon military hardware purchases rather than on local manufacturing .This dependence on purchases for such a big military can not be sustained as in the long run it will have to move to local manufacturing. It will again have many suitors for that too, so whoever will offer a long term deal in one area or another will deepen the relationship and also interdependence as well may bring alignment of  the foreign policy.

Solution For West

It is obvious that no business leaders will oblige to bring back any job , if the cost base in west is maintained. One way to compete with the China, India and others is what everyone is telling to Greece – to get out of the Euro and devalue your new currency. If most of the currencies like dollar, pound , Euro  are brought down to a level that it is almost on par to Yuan etc., then all input cost will be on par too and all the manufacturing will then come back. But this feat is not possible to achieve in one gallop. So, west has to realign their currencies downward continuously over number of years. This system of loving cheap goods, good lifestyle without working hard can not be sustained on long term.  The costs have to become the main focus just like inflation by the policymakers. Of course, when the currencies are devalued, an importing country brings inflation home. But this fight has to begin.

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