A research letter written by Michael Cembalest, chairman of market and investment strategy at JP Morgan, and published in the Atlantic Magazine shows how dramatic this economic power shift has been. The size of a nation's GDP depended on the size of its population and labor force in agrarian economies prior to the Industrial era. With the advent of the Industrial revolution, the use of machines relying on energy from fossil fuels dramatically enhanced labor productivity in the West and shifted the balance of power from Asia to America and Europe.
The shift in power was not just in economic terms. Enabled by machines such as steamboats and weapons like the repeating gun, the West engaged in long distance trade and warfare that led to the colonization and exploitation of Asia and Africa. The new colonies were used as a source of cheap raw materials for European factories and the colonized people served as captive customers for their manufactured products.
While development of Asian and African nations stagnated and their share of world GDP dropped precipitously, their colonial rulers in the West prospered. Social indicators like literacy and life expectancy showed little improvement in the colonies, according to data compiled by Professor Hans Rosling. For example, his Gapminder.org animations show that life expectancy in India and Pakistan was just 32 years in 1947. In Pakistan, it has
jumped to 67 years in 2011, and per Capita
inflation-adjusted PPP income has risen from $766 in 1948 to about $3000 in 2011. Similarly, literacy rate in undivided India was just 12% in 1947. It has increased to about 67% in India and 62% in Pakistan for people 15 years and above.
Indicators such as per capita energy consumption and Internet usage confirm the rise of Asia, particularly Asian giant China's. China's per capita energy consumption now stands at 68 million BTUs, about a fifth of US per capita energy consumption, but it's rising rapidly. Pakistan is at 15 million BTUs per capita, Bangladesh at 6 million BTUs and Sri Lanka at 10 million BTUs.In terms of Internet access, China now tops the world with over 500 million users, more than twice the number of Internet users in the United States. Among the world's top 20 are South Asian nations of India with 120 million Internet users and Pakistan with 30 million users, according to Internet World Stats.
While there has been progress on economic and social fronts in South Asia, the combined GDP of SAARC nation is still accounts for less than 4% of the world GDP. China has significantly increased its share and now accounts for more than 10% of the world GDP marking the biggest economic shift since the Industrial Revolution. China's growing economic clout will ultimately translate into political and military power in the international arena.
All indications are that the pendulum of power has just begun its swing eastward in the last decade. It could be a century or more before the effects of this swing are truly felt in terms of the exercise of economic, military and political power on the world stage. Meanwhile, the 21st century is shaping up to be another American century in which United States' extraordinary power will not go entirely unchallenged by multiple potential adversaries, including China.
Here's a video of a BBC documentary about Al Andalusia or Muslim Spain:
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Here's a WSJ story on growth challenges for China and India:
India and China are grappling with different issues. China doesn't want to repeat the mistakes—such as triggering a property bubble—that it made in its all-out response to the global financial crisis of 2009. India, meanwhile, is struggling to carry out structural economic reforms it failed to enact during its recent boom years.
China's gross domestic product has grown at an average annualized rate of 10% since 2000, but government officials know they can't sustain that torrid pace. Growth fell to 8.1% year-over-year in the first quarter, the slowest pace since 2009, and is widely expected to fall to about 7.5% in the second quarter. If the euro-zone crisis persists—or China's stimulus is poorly carried out—China's growth may weaken further.
But China is better positioned to handle a shock than it was in 2008. It relies less on trade for growth: In 2008, China's net exports amounted to 7.7% of GDP; in 2011 the share had dropped to 2.6%. Beijing reported on Monday that inflation declined to 2.2% in June, compared with a year ago. With government debt at an estimated 22% of GDP, China has plenty of levers to pull to stimulate its economy in the face of declining demand.
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"China is in a very comfortable position compared to the rest of the world," said Luis Kuijs, project director at the Fung Global Institute, a Hong Kong think tank. "It's more a matter of choice of what policy measures it will take to stimulate the economy, rather than whether it will be able to."
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"India's hands are tied, and because of that it's much more exposed to the global slowdown," said Frederic Neumann, co-head of Asian economic research for HSBC. "It has no fiscal ammo left to pump-prime the economy, so it has to endure a slowdown and take it on the chin."
India's main challenge is to stimulate business investment, which is drying up amid wariness among both domestic and foreign companies about shifting tax policies and regulations. The country's currency, the rupee, has tumbled against the dollar in the past year, partly due to growing investor concerns about India's high current-account deficit, which is roughly 4% of GDP. The rupee's fall has driven up real import costs for Indian companies and made foreign-currency loans more expensive to service.
The Reserve Bank of India in April cut interest rates for the first time in three years to fuel business lending. But when industry was looking for more last month, the central bank said it couldn't cut rates further with inflation uncomfortably high at 7.6%.
"The sad thing is that it makes sense in China for it to be slowing down, because it's maturing from a low-income to a middle-income economy," said Rob Subbaraman, Asia economist at Nomura Securities. "In India, growth should be picking up and not slowing down."
http://online.wsj.com/article/SB10001424052702304058404577496443063859250.html
Here's a Wharton School piece on India's low ranking on innovation index:
Just a few weeks ago, global credit rating agency Standard and Poor’s (S&P) released a study titled, “Will India be the first BRIC fallen angel?” The report suggests that India may become the first “BRIC” country (Brazil, Russia, India and China) to lose its investment grade rating. While it remains to be seen if India can escape this ignominy, the country has earned another dubious distinction: It ranks the lowest among the BRIC nations on the Global Innovation Index 2012.
This innovation index was released recently by the international business school INSEAD and the World Intellectual Property Organization (WIPO) along with the Confederation of Indian Industries (CII), Alcatel-Lucent and Booz & Co. The index ranks 141 countries on the basis of their innovation capabilities and results. Brazil, Russia and China were ranked 58th, 51st and 34th respectively. India stands at the 64th position, two notches below where the country landed last year.
According to the study, “The innovation front in India continues to be penalized by deficits in human capital and research; infrastructure and business sophistication, where it comes last among BRICs, and in knowledge and technology outputs, where it comes in ahead of Brazil only.” The report also notes that the BRIC countries need to invest further in their innovation capabilities to live up to their expected potential.
Vijay Govindarajan, a professor of international business at Dartmouth College and the first professor-in-residence and chief innovation consultant at General Electric, points out that innovation is critical to India’s future. He suggests that the government must provide seed capital to strengthen applications research and create incentives for universities, research labs and industry to collaborate. “Much is at stake if India does not move up on the Global Innovation Index,” Govindarajan says. “Without business model innovations, India cannot solve the problems for 90% of Indians. Such innovations can then be used to launch global strategies. This is the essence of reverse innovation [innovations adopted first in the developing world] — where India can lead.”
As part of the same report, India is ranked second (behind China) in the global innovation efficiency index. (The innovation efficiency index is the ratio of innovation input and innovation output.) Chandrajit Banerjee, director-general of CII notes that innovation efficiency is “a ratio and not a direct measure …. [This implies that] while India can produce innovation output best in the world when equal amounts of input are fed into its innovation ecosystem, it also needs to strengthen certain innovation drivers that will improve the situation.”
Gopichand Katragadda, managing director of General Electric’s John F. Welch Technology Center in Bangalore adds: “The results of the study point to the fact that, in India, the innovation ecosystem (input) is poor while the knowledge/creative output under the constraints is good. One interpretation of this is that we need better government measures on regulations, education and infrastructure to tap the demonstrated potential of talented people.”
According to Katragadda, if India does not get its act together on the innovation front, the country could lose the opportunity “to make this a century of Indian innovation, tapping into the brilliant technical minds of the region.”
http://knowledgetoday.wharton.upenn.edu/2012/07/india-ranks-lowest-amongst-brics-in-innovation/
Here's a Wall Street Journal Op Ed by Prof Walter Russell Meade on the impact of European economic crisis on geopolitics:
The crisis of the euro zone is a geopolitical as well as an economic event. While Europe may yet find a path out of its economic quagmire, it will turn inward for some time as it reorganizes some of its core institutions. The world will not stand still while this happens.
To begin with, Europe's disorder is a grand opportunity for Russia. It is not all good news in the Kremlin—Russia will hurt economically, as the European Union is its most important trading partner and customer for oil and gas. But geopolitically, Russia will have a lot of new opportunities. Ukraine, Moldova and Belarus will feel less pull from the West and more from the East.
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Elsewhere, the euro crisis has reinforced Turkey's decision to drop its long courtship of Europe and become an independent actor. Europe looks less and less to the Turks like a model to imitate and more and more like a fate to avoid. Turkey in any case would like to replace the EU as a major political and economic force in the Arab world, and it is likely to use this period of European introspection and preoccupation to advance its agenda.
Between Russia's new geopolitical opportunities and Turkey's detachment from Europe, the situation in the Balkans is going to become much more confused and perhaps even dangerous. If Greece ends up leaving the euro or is deeply embittered with Brussels and the EU over the long term, and if Cyprus is similarly affected (likely, given its close economic ties to Greece), we could see Greece and Cyprus tilt toward Russia.
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This is bad news for Americans. An assumption that Europe is in a period of continuing decline is to some degree baked into the cake of American foreign policy. The perception that Europe (and Japan) are no longer the powers they once were has driven the U.S. to look for new partners as it seeks to build a liberal world system in the 21st century.
But Americans expected a slow and gentle decline, with many years in which to make a gradual adjustment to the change. We hoped that the euro and the single market could mitigate or even reverse that decline. We have also taken for granted that the EU would at least be able to manage its own neighborhood, bringing peace, security and integration to the Balkans and drawing countries like Belarus, Ukraine and even Russia toward Western ways. We may now have to adjust to a world in which the EU is retreating faster and farther than anyone expected.
This euro crisis isn't just a banking or a currency issue. It is a serious political crisis that could dramatically alter the geopolitical balance in Europe and Asia.
http://online.wsj.com/article/SB10001424052702303640104577440362953611968.html
Here's BBC's Soutik Biswas on massive power failure in India's northern grid:
A massive power cut has caused disruption across northern India, including in the capital, Delhi.
It hit a swathe of the country affecting more than 300 million people in Punjab, Haryana, Uttar Pradesh, Himachal Pradesh and Rajasthan states.
Power Minister Sushil Kumar Shinde said most of the supply had been restored and the rest would be reinstated soon.
It is unclear why the supply collapsed but reports say some states may have been using more power than authorised.
Mr Shinde said he had appointed a committee to inquire into the causes of the blackout, one of the worst to hit the country in more than a decade. The committee will submit its report within 15 days, he said.
The power cut happened at 02:30 local time on Monday (2100 GMT Sunday) after India's Northern Grid network collapsed.
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Monday morning saw travel chaos engulf the region, with thousands of passengers stranded when train services were disrupted in Punjab, Haryana and Chandigarh.
The Rajdhani train from Jammu to Delhi was more than five hours late.
"The train stopped near Panipat station [in Haryana] at about 02:30. For a long time we had no idea what was holding us up," passenger DK Rajdan said.
"Rajdhani is air-conditioned so it was not uncomfortable. But for six or seven hours we couldn't get anything to eat or drink and people were beginning to get worried," he said.
Delhi Metro railway services were stalled for three hours, although the network later resumed when it received back-up power from Bhutan, one official said.
Traffic lights on the streets of the capital were not functioning as early morning commuters made their way into work, leading to gridlock.
Water treatment plants in the city also had to be shut for a few hours.
Officials said restoring services to hospitals and transport systems were a priority.
Power cuts are a common occurrence in Indian cities because of a fundamental shortage of power and an ageing grid. The chaos caused by such cuts has led to protests and unrest on the streets.
Earlier in July, crowds in the Delhi suburb of Gurgaon blocked traffic and clashed with police after blackouts there.
Correspondents say that India urgently needs a huge increase in power production, as hundreds of millions of its people are not even connected to the national grid.
Prime Minister Manmohan Singh has long said that India must look to nuclear energy to supply power to the people.
Estimates say that nuclear energy contributes only 3% to the country's current power supply. But the construction of some proposed nuclear power stations have been stalled by intense local opposition.
http://www.bbc.co.uk/news/world-asia-india-19043972
Here's BBC's Soutik Biswas on India's power situation:
As India copes with a massive power breakdown for a second successive day, some interesting facts about the country's power situation to chew on:
India has an installed capacity of more than 170,000 megawatts, up from a mere 1,362 megawatts at the time of Independence in 1947
The majority (around 60%) is generated from coal and lignite, while just under a quarter (about 22%) is hydro-electric
Despite its soaring energy needs, India has one of the lowest per capita rates of consumption of power in the world - 734 units as compared to a world average of 2,429 units. This is nothing compared with say, Canada, (18,347 units) and the US (13,647 units). China's per capita consumption (2,456 units) is more than three times that of India.
The low per capita consumption is despite the fact that the power sector has been growing at more than 7% every year.
Homes and farms are consuming more power today than industries and businesses. Industrial consumption has actually dropped from 61.6% in 1970-71 to 38% in 2008-2009.
India has suffered consistent power shortages since Independence in 1947. Peak demand shortage is more than 10%, whereas the overall energy shortage is more than 7%.
Sixty-five years after Independence, only nine states - Andhra Pradesh, Gujarat, Karnataka, Goa, Delhi, Haryana, Kerala, Punjab and Tamil Nadu - of 28 have been officially declared totally electrified.
India remains perennially energy starved despite 15% or more of federal funds being allocated to the power sector. Bankrupt state-run electricity boards, an acute shortage of coal, skewed subsidises which end up benefiting rich farmers, power theft, and under-performing private distribution agencies are to blame, say experts. There is no shortage of money, and the problem, as the Planning Commission admits, is more "in the delivery process [than] in the system".
Transmission and distribution losses have leapt from 22% in 1995-96 to about 25.6% in 2009-2010. The states with the worst losses are Indian-administered Kashmir, Bihar, Chhattisgarh, Jharkhand and Madhya Pradesh. The best performers: Punjab, Himachal Pradesh, Andhra Pradesh and Tamil Nadu.
India's first power generation company was the private Calcutta Electric Supply Corporation (CESC) started in 1899. The first diesel power plant was set up in Delhi in 1905. The first hydro-electric power station was set up in Mysore in 1902. At the time of Independence, about 60% of India's power sector was privately owned. Today, about 80% of the installed capacity is in the hands of the government. Private companies own 12% of the capacity.
http://www.bbc.co.uk/news/world-asia-india-19063241
Here's a Washington Post piece on India's thirst for energy:
Like China two decades ago and the United States in 1950, India stands on the cusp of transformational economic and social change, a jumping-off point at which the demand for electricity is about to explode.
Its economy and population are among the fastest growing in the world, and it has ambitious and energy-intensive plans to develop its infrastructure and industrial base. But business leaders are crying out for uninterrupted power supplies, and a third of India’s population is not even connected to the national grid.
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Every modern, industrial society in history has gone through a 20-year period “where there was extremely large investment in the power sector, and electricity made the transition from a privilege of an urban elite to something every family would have,” Varro said. “India is right now just at that jump point.”
Whether it succeeds in meeting that demand could be the single most important determinant of India’s economic prospects over the next two decades, one of the main factors that will decide whether the country can continue to pull hundreds of millions of people out of poverty and realize its ambitions to be a 21st-century economic powerhouse.
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But even if India finds the fuel it needs to power its generators, it is not clear how it will pay for the electricity they produce.
State electricity distribution companies across India are mostly bankrupt, forced by their political masters to give power away — free to farmers to run water pumps to irrigate their land, and at below-cost prices to everyone else. Theft and losses of power amount to 28 to 30 percent of output, further bleeding the distributors of resources.
Nationally, separate ministries for coal, gas, power and renewable energy routinely fail to coordinate.
“Policymaking in the energy sector is rather fragmented, and we really don’t have a forward vision,” said Rajendra Pachauri, who won the Nobel Prize in 2007 for his work as head of the Intergovernmental Panel on Climate Change.
Pachauri forecasts that if India continues on its path of “business as usual,” it will have to import unimaginable, and unfeasible, amounts of coal and oil in two decades.
A failure to invest properly in researching and developing renewable energy also threatens environmental ruin. “India can’t possibly continue on the path we are on,” he said.
Charles Ebinger, director of the Energy Security Initiative at the Brookings Institution in Washington, said the difficulties that India faces in meeting its rising energy demand “would pose a serious political challenge for a well-run government — and that certainly isn’t the case here.”
He said the country could struggle to hold its own against other emerging economies, including Brazil, Russia, China and South Africa, countries that with India constitute what is known as the BRICS group.
“If I had to bet, I would say there is a greater possibility of India failing to meet the challenge than of meeting it,” Ebinger said. “You will see India slip down, out of the ranks of the fast-growing BRICS emerging markets, and you will see more political disturbances when energy fails.”
http://www.washingtonpost.com/world/asia_pacific/satisfying-indias-thirst-for-power-could-be-nations-biggest-challenge/2012/08/22/65f6c6d2-e21c-11e1-98e7-89d659f9c106_story_1.html
Here's an ET story on US fund to support private investing in Pakistan:
The United States on Friday announced a multi-year Pakistan Private Investment Initiative worth $80 million in financial support to promote economic activities in the country.
Drawing on public-private partnerships, this initiative will spur job growth and economic development by expanding access to capital for Pakistan’s small to medium sized companies, according to a statement by the US embassy.
“Pakistan has a wealth of talented entrepreneurs that desperately needs capital to fully realise their potential,” said US Charge d’affaires in Pakistan, Richard E Hoagland.
He said that through this initiative, the United Stated can move beyond the traditional foreign assistance by playing a constructive role to help entrepreneurs expand their businesses, provide new jobs to Pakistan’s fast-growing population, and by improving lives in the country.
He said that market-oriented, commercial solutions which support Pakistan’s economic development have been a priority for the United States.
The US Charge d’affaires said that the “Pakistan Private Investment Initiative” will generate investment funds catalysed by US assistance.
The initiative seeks private or other qualified sources of capital for matching investments and funding management services. The investment funds will make equity investments in promising Pakistani companies, under-served by existing sources of capital.
The Pakistan Private Partnership Initiative welcomes proposals from qualified Pakistani, regional, and international fund managers keen on investments in Pakistan by October 12, 2012, said a statement of from the United States embassy.
http://tribune.com.pk/story/436968/us-announces-80-million-for-pakistan-private-investment-initiative/
Here's a TOI story of dearth of research in India:
NEW DELHI: At a time when India is being looked at as the next big knowledge superpower, this could come as a shocker. Just 3.5% of global research output in 2010 was actually from India. In most disciplines, India's share in global research output was actually much below this overall average count.
Sample this - India's share of world research output in clinical medicine was a meagre 1.9% in 2010, 0.5% in psychiatry, 1.4% in neurosciences, 1.8% in immunology, 2.1% in molecular biology and just 3.5% in environmental research.
In mathematics, India's share of world output stood at around 2% in 2010 while it was 17% for China. In case of materials sciences, India's share of world research stood at 6.4% in 2010 while China's stood at 26% -- a rise from 5% in 1996.
While India's research on physics stood at 4.6% in 2010, China's stood at 19%.
In 2010, India's largest shares of world research output were in chemistry (6.5%), materials science (6.4%), agricultural sciences (6.2%), pharmacology and toxicology (6.1%), microbiology (4.9%), physics (4.6%) and engineering (4.2%).
India is often referred to as the next big place for computer sciences. But the figures on its research is abysmally low. Only 2.4% of global research on computer sciences was from India in 2010 while the world share moved to three emerging research economies - China 15%, Korea 6.3% and Taiwan 5.7%.
India's global share of research in economics stood at 0.7% in 2010 while in social sciences it was worse - 0.6%.
The biggest declines in volume of research between 1981 and 2010 were in plant and animal sciences (-2.2%) and agricultural sciences (-1.6%). The most significant expansions were in pharmacology and toxicology (+4.2%), microbiology (+3.2%) and materials sciences (+3.1%).
These are the findings of the study on India's research output and collaboration conducted by Thomson Reuters and recently submitted to the department of science and technology.
"India has been the sleeping giant of Asia. Research in the university sector, stagnant for at least two decades, is now accelerating but it will be a long haul to restore India as an Asian knowledge hub. Indian higher education is faced with powerful dilemmas and difficult choices - public/private, access/equity, uncertain regulation, different teaching standards and contested research quality," the report said.
According to it, India's share of world output in engineering fell from 4.3% in 1981 to 2.2% by 1995. India later regained its lost share, increasing to 4.25 by 2010. However, even then, India was overtaken by China (16.4%), Korea (5.4%) and Taiwan (4.4%).
India, where agriculture dominates economic standards, had quite a large share in agricultural sciences which averaged 7.45% over the 1981 to 1995 period, well ahead of other emerging research economies. Its share, however, fell to 6.2% in 2010. Even in the field of plant and animal sciences, the global research output fell from 6.1% in 1981 to 3.9% in 2010.
The report said, "India has a long and distinguished history as a country of knowledge, learning and innovation. In the recent past, however, it has failed to realize its undoubted potential as a home for world class research."
It added, "During the 1980s and 90s, the output of India's research was almost static while other countries grew rapidly, particularly in Asia. China expanded with an intensity and drive that led it rapidly to overtake leading European countries in the volume of its research publications. India is just beginning on this gradient."
http://timesofindia.indiatimes.com/india/India-accounts-for-just-3-5-of-global-research-output-Study/articleshow/16551045.cms
Here's PakistanToday on primary energy consumption in Pakistan:
KARACHI - Pakistan’s gas requirements are growing hastily, while the domestic gas production is not growing at the same pace. Primary energy consumption in Pakistan has grown by almost 80pc over the past 15 years, from 34 million tons oil equivalent (TOEs) in 1994/95 to 60 million TOEs in 2010/11 and has supported an average GDP growth rate in the country of about 4.5pc per annum.
Consumer Rights Commission of Pakistan (CRCP) in collaboration with Citizens’ Voice Project hold policy dialogues on “Role of Government and Regulators in the Gas Sector of Pakistan” with parliamentarians, policy makers, regulators and civil society organisations here on Wednesday.
CRCP recommended Effective Governance & Regulation for development of Gas Policy in dialogue.
The present natural Gas crisis clearly indicates that overall governance of the gas sector needs improvement. The growing energy shortages have made life difficult for Pakistanis across the board. The quality of life of citizens has deteriorated.
Dialogue reported that economic growth rates have been stunted, and industry and agriculture have suffered. The Government of Pakistan has not yet recognising magnitude of crisis and its effect on the people and the economy. Government has to take emergency measures to address, manage and reduce the impact of crisis. The reasons for present crisis in gas sector have both technical and governance aspects.
The dialogues have given comprehensive insight into the current situation of transparency, public participation and accountability processes in gas sector of Pakistan. The intervention is likely to result in enhanced understanding of the sect oral issues for the stakeholders.
Most important of all, it is expected to inform the policy makers and especially the public representatives about the governance situation of the sector and shall persuade them to take positive actions for sectoral improvement. In Pakistan, industrial and fertilizer sectors are getting gas on subsidised rates, while the CNG stations were being subjected to an exorbitantly high tariff regime, neglecting the general public’s interest. The gas consumers’ woes could not be resolved unless Pakistan had an autonomous regulator free of political interference. Besides, the problems could not be resolved without improving people’s access to information, putting in place a system of strict penalties on consumers involved in gas pilferage and non-payment of gas bills
http://www.nation.com.pk/pakistan-news-newspaper-daily-english-online/business/31-Jan-2013/primary-energy-consumption-grows-by-almost-80pc-in-15-years
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