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Central banks, global warming & more...

Jan 28, 2008

  • This certainly is going to be the week 'of' central bankers, as we await remarks on interest rates from Y.V. Reddy (the RBI Governor) and Ben Bernanke (the US Federal Reserve Chairman). The Fed's recent decision to cut its benchmark rates by 0.75% in the wake of a global stock market meltdown has evoked mixed reactions from the economic experts. And it has indeed made the task of the Reserve Bank of India (RBI) a lot tough. While the Indian central bank was earlier expected to keep rates steady, considering the risks to inflation, the fact the US interest rate cut is expected to compound the problems of managing international liquidity has made the RBI's task more confusing.

    This is simply because the decline in US interest rates have led to an increase in the spread between them (US rates) and Indian interest rates. A large spread can lead to money flowing in hordes from the US investors (who can borrow at low cost and invest for higher returns), which can re-inflate the asset price bubble spanning emerging markets. While India seems to be relatively insulated from the weak US economic situation (given the country's low dependence on exports to the US), a worldwide recession will definitely cast its cloud on one and all.

  • Mumbai is recording some of its coldest days in 10 years' time, as mercury levels have dropped to just about 10 degrees Celsius. This unprecedented weather has been attributed to a cold wave that spans across the North of India. Effects of global warming or global cooling, is it? The fact is that our climate is rapidly changing for the worse is too strong to be reasonably ignored. Talk about the extreme heat waves that span the months of April to June and then about rains that flood cities and villages alike, the world is indeed becoming a dangerous place to live in, naturally! While a part of India Inc. has taken note of the same by going 'green', or taking environmentally friendly initiatives, there is a big part (including the power generators and small scale industries) that continue to smoke out dangerous gases and fluids into the atmosphere and rivers respectively.

    India, for instance, talks about setting up 80,000 MW of electricity during the XIth plan (2007-12), a large part of which will come through coal based generation. The dark side of using this commodity (coal) is clearly summed up by The International Herald Tribune, which reports, "It takes 5 to 10 days for the pollution from China's coal-fired plants to make its way to the US, like a slow-moving storm. It increases cloud cover and raises ozone levels. And along the way, it contributes to acid rain in Japan and South Korea and health problems everywhere from Taiwan to the US. Health costs related to air pollution total US$ 68 bn a year, nearly 4% of China's country's GDP. And acid rain has contaminated a third of the country. It is said to destroy some US$ 4 bn worth of crops every year."

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