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What actually led India’s GDP to fall to -23.9%?

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The greatest economic contraction that India has seen since its independence is on its way. A glimpse of it can be seen in the steep fall of the country’s GDP for the first quarter of Financial Year 2020-21.

The unprecedented pandemic is surely a big reason behind it, but can the pandemic be entirely blamed for -23.9% GDP? What are the other reasons behind this huge plunge of the world’s fifth-largest economy? And why are the experts saying that the real contraction is going to be much worse?

India’s falling GDP

India’s growth rate has collapsed by negative 23.9%. For the first time, such a collapse of GDP is seen since The National Statistical Organisation started releasing quarterly data in 1996. But the fall of economic growth for this quarter, when compared with the previous seven quarters; cannot be completely blamed on the coronavirus epidemic.

The GDP was falling, for the last eight quarters, it’s been consistently downhill. The last time India’s highest recorded economic growth after some dead-cat bounce was 8.3% in the financial year 2016-17. India broke its own economic momentum after 2016 with demonetization.

Politically people can have different opinions about it but economically it was like puncturing wheel of the country’s own vehicle. The economic growth of quarter 4, Financial Year 2019-20, just before the pandemic hit India, was already down to 3.1%.

What is the GDP of other countries of Q1 for FY 2020-21?

Except for the world’s second-largest economy China; every other large economy has incurred economic loss in the coronavirus epidemic and with the subsequent lockdowns.

After India, the UK’s GDP has seen the sharpest dip with contraction of -21.7% in April-June quarter; followed by France with the downfall of -18.9%. Italy’s GDP has fallen to -17.7%, this is the lowest GDP that Italy has seen since 1995. Canada’s economic growth declined to -13%, while it’s calculated annual fall of GDP is of -38.7%. Germany with -11.3% is witnessing such a sharp steep fall nearly after half a century.

Japan is also going through the worst economic contraction since 1980 with GDP contracting to -9.9%. The US’s GDP shrank to -9.1%, and the annualised calculated downfall of the economy of America is -31.7%.

Despite the fact that the economic growth of most of the countries has declined, India’s contraction is still at the peak of them all. India’s nominal economic growth rate is much higher, and it is a growing economy. When this is compared to the EU countries or with the USA, India’s plunge of -23.9% becomes much higher because it has fallen from a sizeable economic growth to a sizeable negative growth. India have a low economic growth compared to most of the western countries; it has a meagre per capita incomes which makes this downfall a big loss for the country.

Most affected sectors

If the GDP’s growth rate is broken and distributed amongst different economic sectors; the negative growth rate can be seen in almost every sector with an exception of the agricultural sector.

  • Manufacturing Sector contracted to -39.3%
  • Mining Sector contracted to -23.3%
  • The construction sector saw a contraction to -50.3%
  • Trade, hotels, transport, communication and service sector fell to -47%
  • Gross Value Added (GVA) witnessed a downfall of -22.8%
  • Real estate, financial and professional services shrank to -5.3%

The only sector that has flourished in this time of crisis is the agricultural sector which has seen a growth of +3.4%. The reason behind this could probably be because of the hike in the unemployment rate. People who lost their job have returned to their villages and in order to earn a livelihood have started working on the field; therefore profiting the agricultural sector.

What is the future of economic growth for India?

The new data expects that India’s economy will not recover in V or U shape but in K-shape. This means that people who are in profit will stay in profit while those incurring loss will be buried deeper in the picture. India’s growth potential can go back to 5%, and that would be like; taking the country’s GDP even before the pre-reform period of 1980-90s. And for a low-base economy like India, if this happens, it would be awful.

Average Indian’s real income adjusted with inflation in 2022-23 will be exactly the same as 2019-20. This would be like loosing three years from the country’s economy.

Huge damage to country’s economy is already done, to be able to revive from this India needs to introspect; on what exactly has it done wrong, and how it got itself in such a situation from 8.3% quarterly growth to -23.9%,

Economy

The UK Economy Braces for 2-Year Long Recession: What Went Wrong?

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Rishi Sunak

The UK economy is witnessing one of the worst crises in its history. The downfall of the pound, war-infused energy crisis, skyrocketing electricity bills, collapsing stock market, changing Prime ministers, and whatnot?

Nothing has gone in the UK’s favor since the passing of the Queen. And now the country is bracing for a prolonged two-year recession with contracting third quarters.

But what went wrong in the first place? How did this trigger an economic catastrophe in the UK? And can Rishi Sunak save the UK?

Here is a detailed explainer:

UK Economy: An Overview of the Problem

With the political upheaval and the pandemic, the already suffering economy of the UK reached its brim when the Russia-Ukraine war ignited. 

In response to Ukraine’s invasion, Britain halted the import of fuel, gas, or coal from Russia since June for the first time in the past 25 years.  

As a result, Russia stopped its critical gas pipeline to Europe, thus creating an energy crisis. 

All this led to the UK’s economic downfall. 

Today, inflation is at an all-time high of 9.9%, a 40-year high. Energy bills are shot up by almost 80%despite capping. Finally, and most importantly, the pound has become one of the worst-performing currencies, with its value dropping by 24% against the dollar.  

The Mini Budget Turmoil 

With such disruptive environments in the UK, former Prime Minister Liz Truss came up with the mini-budget. The mini-budget baskets a slew of tax changes, including the elimination of the high rate of income tax for the wealthy and the energy subsidies policy platform. 

However, the mini-budget backfired and now has snowballed from an energy crisis into debt, housing, currency, and even a banking crisis. 

The pointer mentioned in the mini-budget has been so terrifying that it shook the economy of the UK and plunged the London Stock Exchange horribly. 

With such an unstable situation inside the UK economy, Truss changed her mind about company taxes after days of adamantly defending her budget and firing finance Minister Kwarteng. 

“I still agree with my policies, but I’ve sacked my finance minister because he announced them, and the market didn’t like them.” 

She said 

A Cold and Long Winters Awaits the UK

The three major events that make the incoming winter snug for the UK are:

  • First, Russia has entirely cut off gas, which causes the cost of electricity to shoot up by almost 80%
  • Secondly, on top of the existing gas storage, the incoming winter energy consumption is about to hit a new peak from September to December. 
  • Third, even if Europe had 90% of its Energy storage complete in September 2022, it could take only 90 days for it to reach dangerously low levels. 

Long story short, a gas shortage during a peak consumption time, with no storage option, will further increase energy prices. It has already been shot up at extreme levels resulting in high electricity bills that eventually heated inflation and the economy of the UK. 

Even though the UK is receiving help from the US and other countries, gas prices are still very high. Hence the cost of production and inflation has hit a record 9.9%.  

“It is going to be tough. But protecting the vulnerable – and people’s jobs, mortgages, and bills – will be at the front of our minds as we work to restore stability, confidence, and long-term growth,”

British finance minister Jeremy Hunt twitted

Bond Market Crisis with Collapsing Pound 

The UK’s property market, pension industry, and overall economy are at risk of recession. The reason behind this is the decline in the price of UK government bonds and the ensuing rise in interest rates. 

10-year bond rates in the UK have gone above almost 300%, going from just about 1% to 4.11% in just nine months. 

Even though the bonds yield a 4% interest, the currency has depreciated to such an extent that it has become a disaster for foreign investors. As a result, foreign investors are quitting the UK market, further decreasing the demand for the pound. 

Such a crisis in the bond market resulted in currency depreciation further, and the sterling slid against the US dollar. Furthermore, during the Ukraine-Russia war, Russia cut off gas supplies, and oversized reliance on imports further surge Euro.   

Rishi, the Third Prime Minister in Three Months 

After the resignation of Boris Johnson with 27 ministers, the office was handed over to Liz Truss. When Boris left the office, there was a sensation in the UK that it was time for stability and competence.

However, due to poor politics and policies, Liz Truss abruptly resigned from the post of Prime Minister within 45 days. The shortest and most disastrous spell that slung the economy of the UK and crashed the pound forced Liz Truss to step down from the post. 

With the resignation of Liz Truss, the reign was entrusted to Rishi Sunak, the third PM of the UK in the last three months. Sunak’s appointment ended another period of political unrest in the UK. 

But many analysts and Westminster observers are still of the opinion that there will soon be another crisis. With the opposition Labor Party presently leading in the polls, all opposition parties are pleading for a general election.

Can Rishi Sunak Save UK Economy?

The political unpredictability has led the UK economy into a two-year-long recession. The previous two prime ministers were unqualified to steer the UK economy’s flimsy ship. Hence Rishi has some challenging tasks to do. 

Now, everything will depend on how Rishi approaches the challenging work of rescuing the UK economy from disaster, and it will be interesting to watch how he advances.

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Muslim Women’s Empowerment and Inheritance Rights 

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Muslim Women's Inheritance Rights

Despite Islam giving Muslim women the right to inheritance, it is rare to see Muslims follow this Islamic law.  The recently released National Family Health Survey 2019-20 (NFHS-5) fact sheet for Jammu and Kashmir states that only 57.3% of women in the Union Territory of Jammu and Kashmir own a house and/or land, alone or jointly (PDF of the survey). J and K is a Muslim-majority region. According to 2011 census, 68.3% of the region’s population is Muslim. 

Even though we can read these figures as “at least more than half women own property”, however, given that all women are coparceners in one or the other way, it raises vexing questions.

Islam entitles a sister to inherit half of what a brother gets as a coparcener. Despite this fact, the number of women owning property is almost half of that of men.

The data on women’s inheritance in Pakistan and other Muslim-majority South Asian countries is much worse. There are very few women who own property in South Asian countries.

Inheritance Rights, a Taboo?

Women asking for their coparcenary rights is considered taboo here. Further, women also seem to have internalized that asking for inheritance rights will break their relationship with other members of the family, especially brothers. As a result, they sign relinquishment deeds without giving a second thought about it.

Also Read: Death of Mahsa Amini: How Governments are Denying Women’s Right to Choice?

Women’s Empowerment through Inheritance

People mostly see the inheritance of property as a matter of money and wealth. However, it goes beyond that, at least for women. Economically speaking, ownership of any kind of property by women is a very important determinant in the quest for women’s empowerment.

In a realist world where everyone is responsible for their own survival, women should not expect their male relatives to care for them. Unless women do not attach economical value to their lives, they will have no power. This is especially true for unemployed women who do not have financial independence. Since inheritance of property is a given- however small value it may have, they do not have to get an education or work to get it. The only thing they need to do is not to sign the relinquishment deed.

Also Read: Why Are Muslim Women Still Behind Bars

Militating Against Women’s Empowerment

Relinquishment of coparcenary rights militates against women’s empowerment. It is high time that women ask for the inheritance rights that the constitution as well as the religion gives them. The right to inheritance also seems one of its kind means to women’s empowerment where people peddling religiosity may not find a reason to oppose it. Women should know that signing a relinquishment deed may lose them a lifetime opportunity for leading an independent and respectful life in this patriarchal world.

Also Read: The women behind #Blacklivesmatter movement

The Debate on Equality of Rights

It is generally accepted that Islam entitles a sister to inherit half of what a brother gets as a coparcener. However, the interpretation of the Quran regarding this law is debatable. According to Mohmmad Iqbal, “the share of the daughter is determined not by any inferiority inherent in her, but in view of her economic opportunities, and the place she occupies in the social structure of which she is a part and parcel.” Iqbal goes on to justify the case of inheritance law in Islam arguing that the daughter “is held to be the full owner of the property given to her by both the father and the husband at the time of her marriage.” Further, “she absolutely owns her dower-money which may be prompt or deferred according to her own choice, and in lieu of which she can hold possession of the whole of her husband’s property till payment, the responsibility of maintaining her throughout her life is wholly thrown on the husband.”

Therefore, for Iqbal, if we “judge the working of the rule of inheritance from this point of view, you (we) will find that there is no material difference between the economic position of sons and daughters.”

However, Iqbal made this point in 1930. Since then, there has been a significant change in the economic positions of men and women. If the motive behind inheritance laws, as mentioned by Iqbal, is applied to modern-day conditions, sons and daughters may well get an equal share in inheritance.

Towards Muslim Women’s Empowerment

Inheritance rights bestowed by Islam on Muslim women show Islam’s inherent quest for women’s empowerment.

Even though the West blames Muslims for repressing women’s rights, Islam has its in-built laws for women’s empowerment. These laws, unlike West’s feminist rhetoric, go beyond symbolic empowerment like sartorial choice, and hence materially empower women.

However, it is a shame that Muslims do not follow Islamic laws like inheritance law in letter and spirit. If all Muslims obeyed these laws, the world would become a better place for Muslim women.

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“The Worst is Yet to Come”— Recession 2023 & the Looming Uncertainty

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recession 2023

Recession 2023 is just around the corner.

The global economic crises are now inducing the certainty of a looming recession. Economists and financial organizations warned of upcoming uncertainty; however, regrettably, the world failed to decode the uprising of the economic catastrophe. 

Today’s economies around the globe are confronting an urgent economic crisis and is on the brink of a recession. And, the experts fear the worst is yet to come!

Shear Impact on Leading Economies – US, UK, China, and India

“Global growth is slowing sharply, with further slowing likely as more countries fall into recession. My deep concern is that these trends will persist, with long-lasting consequences devastating for people in emerging markets and developing economies,”  

World Bank Group President David Malpass.

For the first time since 2009, the US declared negative GDP growth two quarters in a row, which officially qualifies as a recession.

The British Pound is at its historic low of $1.038 against US dollars due to rare emergency interventions. Cities and states in China are still in lockdown because of a rise in Covid-19 cases. On the other hand, Indian Rupee is at its 75-year low of Rupees 82.11 against the US dollar, soaring the hike in repo rates to 5.90%

Srilanka already declared insolvency earlier this year. Russia and Ukraine war had already set the stage for World War III. And the recent resilience of china on Taiwan has tarnished the world economic environment. 

Read More: Sri Lanka: What Led the Island Nation to Bankruptcy?

All these together indicate the harsh truth: Recession 2023 will worsens the conditions of all major economies and push the globe into undefined circumstances like:

  • Central banks hiking the interest rates
  • Hike in energy and food prices
  • Depreciation of major currencies against the dollar

 Central Banks Hiking the Interest Rates  

To counteract rising inflation and the impact of a strong currency on the economies, central banks are hurriedly raising interest rates. This happens as the US Federal Reserve keeps up its aggressive interest rate hikes.

Rising Interest Rates
Rising Interest Rates. Image Source: India Today

On the other hand Reserve Bank of India is also struggling with persistently high inflation, which is made worse by geopolitical unrest, droughts, and supply-chain disruptions

Hike in Energy and Food Prices

Russia is the world’s third-largest oil-producing country. It provides 7-8 million barrels of crude oil per day, or 14% of global production, to international markets. 

The US and UK’s restrictions and many other nations’ decisions to stop purchasing Russian petroleum have exacerbated the crisis.

Russia and Ukraine are the biggest sunflower oil producers globally and the second most frequently used cooking oil. However, sunflower oil cannot yet be exported from Russia due to the tightening of import restrictions. 

Plus, due to the increasing demand for sunflower oil in the market, other edible oils are now more expensive, raising the cost of food and other products across borders.

Depreciation of Major Currencies Against the US Dollar 

Compared to the US dollar, the Japanese yen has dropped to its lowest level since August 1998. The Indian rupee is hitting its lowest in history, and for the first time in 20 years, the euro is now lower than the USD.

The decline of major currencies indicates the current state of the global economy. Moreover, it provides a crystal-clear forecast of how disastrous the recession 2023 would be if significant steps are not taken to control the situation.

The Decelerating Global Economy: IMF Forecast for Recession 2023

The International Monetary Fund (IMF) is warning that over a third of the economy is headed for a recession this year or next. Its world outlook shows growth withering from 6.0% in 2021, 3.2% in 2022, and an estimate of just 2.7% in 2023.

Recession 2023 will be different from all the recessions the world has faced to date. Different factors are driving economic crashes in different countries, for example:

A cynical recession by hiking interest rates in the US, a structural recession in China powered by the crashing property market, and financial insecurity exaggerated by the ongoing energy crisis in Europe.

The ongoing turmoil in the national and global market is further sparking the threat of World War III.

Rising Certainty of World War III

Russia has already invaded Ukraine, and in opposition to Ukraine’s protection, the US cleared this support with Ukraine by immediately sending weapons to Ukraine. Such US behavior infuriated Russia, leading to increased attacks. 

Russian President Vladimir Putin warned the US and European countries that further expansion of support to Ukraine might lead the situation to a ‘Global catastrophe.’ 

On the other hand, China assaulted Taiwan due to the recent visit of the US finance minister. The current clash of China and Indian troops erupt seriously, leading to grim conflict on north-east Indian borders.  

Additionally, civil wars in countries like Somalia, Yemen, Syria, Ethiopia, Afghanistan, and Mali are raising the certainty of World War III

Needless to say, World War III will destroy the world economy, resulting in more financial turmoil, starvation, a hike in oil prices, and the depreciation of currencies

Recession 2023: The Worst is yet to come

Slowing down economies, high repo rates, depreciation of currencies, bankrupted countries, and looming wars between nuclear countries are further solidifying the onset of a cold economic winter. 

The circumstance indicates what is coming. The indication of recession, the yell of “the worst is yet to come.

However, to wrench the global situation on track, policymakers should continue to give needy powerful tailored assistance to respective governments while also putting in place reliable medium-term fiscal strategies.

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