India's Economy Struggles with Energy Woes
The World Bank's latest International Debt Statistics report released on October 11 shows that the total external debt of lower-middle-income countries increased by 5.3% in 2020, reaching 8.7 trillion US dollars, affecting multiple countries worldwide. The report also indicates that the growth rate of external debt has exceeded the growth rate of gross national income and exports. Excluding China, the ratio of these countries' external debt to gross national income increased by 5 percentage points in 2020, reaching 42%; the debt-to-export ratio increased significantly from 126% in 2019 to 154% in 2020.
Furthermore, in 2020, the net flow of funds from multilateral creditors to lower-middle-income countries rose to 117 billion US dollars, the highest level in a decade. The net lending to low-income countries increased by 25%, reaching 71 billion US dollars, also the highest level in a decade. Carmen Reinhart, the World Bank's Chief Economist, said that half of the world's poorest countries are facing an external debt crisis or a high risk of an external debt crisis. As interest rates rise, the plight of heavily indebted countries facing challenges may further intensify.
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Not only that, but the latest data from the Institute of International Finance (IIF) shows that global debt rose to a historical high of 296 trillion US dollars in the second quarter of this year, 36 trillion US dollars higher than pre-pandemic levels. The total debt, including official, household, corporate, and bank debt from countries around the world, soared by 4.8 trillion US dollars. Regarding the global debt total approaching a historical high of 300 trillion US dollars, S&P Global Ratings believes that low interest rates will help control global debt risks. However, it seems that things may change at the Federal Reserve, which can control the interest rates of the world's most important reserve currency.
An important change is that, according to the latest Federal Reserve September meeting minutes released on October 13, the Fed may start reducing the monthly bond purchases of 120 billion US dollars before mid-November. At the same time, although the Fed has maintained the benchmark short-term borrowing rate at 0 to 0.25%, the market's expectations for interest rate hikes next year are strong, with the probability of a rate hike in September next year as high as 90%. If this happens, it will be equivalent to pulling the rug out from under the feet for many countries around the world that are unable to repay their debts. This is also a common operation of the Federal Reserve over the years, transferring the risk of the US deficit to fragile markets through different monetary measures.
According to a recent report by Bloomberg, Argentina, Sri Lanka, Ukraine, Brazil, Pakistan, Egypt, Indonesia, India, Vietnam, Turkey, and other 10 countries may face rising financing costs. This means that the huge US deficit risk is transferred to at least 10 countries mentioned above. In other words, the big sharks on Wall Street are watching the market, preparing to short sell, and any country that lacks foreign reserves and experiences a slight economic turmoil will be heavily shorted. Yesterday it was Zimbabwe, and tomorrow it is very likely to be other fragile markets with high external debt and low foreign reserves.
The Royal Bank of Canada pointed out that economies with limited borrowing capacity are more at risk of being impacted, and India is very obvious. Especially against the backdrop of the potential end of the dollar feast, India's debt problem is imminent.
According to a recent report by Reuters, India's economy may be heading towards a financial crisis. Currently, India's industrial production growth is at its weakest level in ten years, and the business confidence index is also in a free fall, which will be the weakest growth since 2008. Data shows that since March last year, about 97% of Indian households have seen a decrease in income. The Indian rupee has been one of the worst-performing currencies in Asia for three consecutive years since 2018. According to an IMF report, India is the country with the highest debt ratio among all emerging markets, please note, there is no one else.
In the 2020 fiscal year, India's general government debt has soared to 69.3% of GDP, already higher than the internationally recognized 65% warning value, and the highest level in three years. Moody's has also previously downgraded India's credit assessment outlook to negative. Data shows that including the debts of various states, India's public debt is as high as 1.17 trillion US dollars, but India's foreign exchange reserves are only 535 billion US dollars, and the total debt accounts for about 245% of foreign reserves. This indicates that the Indian economy has been overly dependent on US dollar debt for a long time and is actually in a state of overspending.
This provides convenience for dollar capital to harvest wealth arbitrage in India. It is worth noting that regarding the high growth index of the Indian economy in the previous few years, Rajan, who once served as the Chief Economist of the IMF, said that he does not know what India's statistical data is and needs to find out what the real growth rate of the Indian economy is. He said, "I know an Indian minister said, how can we show a growth rate of 7%? Well, there is a possibility that India's actual growth rate is not 7%." This means that there is doubt about India's economic data.
The Indian economy is deeply trapped in the dollar black hole, and once the dollar is withdrawn or the Federal Reserve changes its monetary strategy, it is inevitable that the Indian market will fall into a debt predicament. The Economist magazine analyzed that the current Indian economy is in the most urgent situation in 25 years. This also means that the Indian economy may face the risk of regressing to its original state. Wall Street capital shark Jim Rogers recently issued another call to attack the Indian economy again, saying that he has not invested in India after 2014. This is another signal for Wall Street to short the Indian market.Adding insult to injury, Indian media claims that India's "potential" has been overestimated due to its poor social structure and infrastructure. The editor-in-chief of the Asian edition of the Financial Times, Jamil Anderlini, believes that "Make in India" may sound impressive, but it appears to be a mirage.
In fact, India has always been surrounded by several "banana economy countries," including Bangladesh, Sri Lanka, Myanmar, Thailand, and Afghanistan. The term "banana economy country" refers to an economic system that is based on a single economy (usually cash crops such as bananas, cocoa, coffee, etc.), with an unstable economic environment, especially those countries with strong foreign economic forces involved.
Another new development is that India is currently facing a severe energy crisis. An Indian official named Sisodia stated on October 10 that the Indian federation turned a blind eye to the coal and energy crisis, just as it evaded responsibility during the second wave of the COVID-19 pandemic when India faced an oxygen crisis.
Another change is that, against the backdrop of the recent tightening of the global energy supply chain, the Russian Satellite News Agency reported on October 13 that Total Energies CEO Patrick Pouyanne said at the Evolen conference in Paris that the surge in natural gas prices may limit the supply of liquefied natural gas to countries such as Pakistan, Vietnam, Bangladesh, and India in the long run. This further indicates that economies like India cannot bear the pain of energy shortages. This is a heavy blow to the Indian economy, which is trying to develop its manufacturing industry on a large scale but has not yet made a breakthrough.
It is worth mentioning that investors who are concerned about India's economic demonetization policy are constantly asking whether India will become a banana economy. Data shows that although India has seen rapid development in industries such as manufacturing and e-commerce, as well as agricultural production, it is still an agriculture-based country, with 80% of its population currently relying on agriculture.
Moreover, another report from the World Bank a few weeks ago pointed out that India remains one of the most difficult countries in the world to do business in. The US financial website Zerohedge analyzed and reported that, based on all current economic data, intentions, and purposes, the Indian economy also belongs to a "banana economy country." The hidden hand behind the fragile Indian economy, which may even regress to its original state, is gradually emerging - the Wall Street financial tycoons. However, it is interesting to note that for many years, a part of the Indian economy has been engaging in interest transactions with the Wall Street financial group and has been enjoying it.