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This Week in Brexit: Trump Promises a Trade Deal

by John Brian Shannon

On the sidelines of the G20 Hamburg summit, U.S. President Trump found time to meet with UK Prime Minister May and to offer welcome words that the United States will sign a bilateral trade deal with the UK as soon as Brexit is complete.

It’s very good news for the UK and also for PM Theresa May (who has had a rough time in domestic politics of late) and it was obvious that the U.S. president went out of his way to assure Ms. May that a reciprocal trade agreement — one that works for both America and for Britain — is one of his administration priorities.

So much of the UK’s post-Brexit success will hinge on bilateral trade accords because no matter how good the final Brexit agreement, there will be some amount of economic adjustment for Britain in the months following Brexit. A quick trade agreement with the United States will not only ease the Brexit transition, but also  improve the UK (and America’s) economy indefinitely.

It was a classy thing for Mr. Trump to do for Theresa May knowing that her domestic political fortunes have taken a hit. Let’s hope the Prime Minister is able to return the favour at some point during the Trump administration. That sort of respect makes for strong allies.

During WWI, but especially during WWII the relationship between America and Britain was raised to a very high level by Prime Minister Winston Churchill and President Harry S. Truman, and in the postwar era during a time of unprecedented economic growth, President Ike Eisenhower continued the wise course set by his predecessor.

However, it could’ve so easily gone the other way if the leaders hadn’t gotten along.

Both sides would’ve missed geopolitical opportunities of huge importance such as the formation of NATO, the establishment of the Nuremberg trials and the creation of other institutions and agreements such as Bretton Woods and the IMF. Without the ambition of the UK and the power of the United States those things simply wouldn’t have occurred.

Millions of Americans and Britons prospered over the past 72 years because their postwar political leaders *didn’t drop the ball* and made a conscious decision to *make the best of the postwar relationship* for their respective people.


What Kind of Free Trade Agreement Should Prime Minister May and President Trump pursue?

Present-day Prime Minister of Canada Justin Trudeau was still in school when Canada first approached the European Union to ask about a bilateral trade deal, and that many years later it still hasn’t come into effect. (It’s about to, they say)

It will have taken eight years to hammer out and begin to abide by, the Comprehensive Economic and Trade Agreement (CETA) which arrives so late in the game and market conditions do change over time (remember way back to the 2008/09 financial crisis when the CETA agreement was first floated?) that some of the hard-won negotiating points are no longer relevant and may never be finalized.

Canada, EU to provisionally apply CETA in September (CBC)

I’m sure it’s a fine agreement and congratulations are due. However, with America and Britain at the controls of a mutually beneficial trade agreement between two friendly Anglophone nations, it should take less than a year from first discussion to signed agreement.

Though we don’t know what shape an Anglo-American trade agreement might look like from our vantage point in July of 2017, probably the best idea would be for both sides to embrace reciprocity and fair dealing in all trade matters as a way to enhance both economies, and as a way to later attract other Anglophone nations such as Canada, Australia and New Zealand to sign on to such an agreement.

Hitting the Right Note with Commonwealth of Nations member India

What a great thing it would be if all Commonwealth nations eventually agreed to sign on to a U.S. / UK trade agreement. Commonwealth of Nations member India has 1.5 billion consumers alone!

Both America and Britain could add 5% to their respective GDP just on the improved trade flows of doing business in the booming Indian economy.

“Although India’s rapid population growth is part of what accounts for the forecasted jump […] that is only part of the story. Drastic improvement in terms of per-person productivity due to capital investments and better technology will play an even more important role.

“PwC predicts that India’s economy will grow by about 4.9% per year from 2016 to 2050, with only 0.7% of that growth caused by population growth.

“India’s economy is currently the third-largest in the world, and is expanding at an estimated annual growth rate of 7.1% for the 2016-17 financial year. —  India’s economy is forecast to surpass that of the US by 2040 (Quartz)

Both America and Britain just need to hit the right note with India — a respectful note — in order to profit from the massive growth that is available in that burgeoning country.

Working out an Anglo-American trade agreement with a view to adding all Commonwealth member nations within 24 months, guarantees that other powerful trade blocs don’t beat the Anglo-American alliance to supply the rocketing Indian economy with much-needed goods and services.

Projected growth for selected countries – As measured by Purchasing Power Parity (PPP)

Projected GDP growth UK 2016-2050 PwC

Projected GDP growth UK and other countries 2016-2050. Image courtesy of Quartz.com


It’s so obvious but still worth repeating; ‘Hitch your wagon to the fastest horses if you want to place well in the race.’

Britain has the Commonwealth of Nations connections, Britain needs a trade agreement with NATO ally America and with Commonwealth partner India, and the United States wants to increase mutually beneficial trade with Britain and its 2-billion-strong Commonwealth partners.

In all of human history, rarely has such a synergistic match-up suddenly appeared where different but extremely valuable benefits are available to all three parties.

Just as nobody predicted the massive Japanese economic boom which began to form the day after WWII ended, an Anglo-American trade agreement, followed by a Commonwealth trade agreement (before other trade blocs grab the low-hanging fruit!) could match or exceed the massive performance statistics of the postwar Japanese economy.

Dear United States and Commonwealth of Nations, Let’s not miss this rather obvious ‘Win-Win-Win’ opportunity!

Money… Money Changes Everything!

by John Brian Shannon

At this moment in UK history, more money is needed to fund the NHS, schools, roads, railways, airports and other national infrastructure, Trident, foreign aid — and to fund 500 million sterling worth of renovations to the House of Commons.

Money is certainly the problem, as more money would solve all of those issues and many more.

Unfortunately, some governments ‘rob Peter to pay Paul’ but with little change in the total amount of revenue actually collected by the government.

  • In some cases, a socialist (Labour) government will raise more revenue by raising taxes. Let the wailing begin!
  • In other cases, a conservative (Conservative and Unionist) government will cut expenditures via fiscal and budgetary belt-tightening. Groan!

Which is why governments everywhere are always on the hunt for more money.

But are they? Are they really on the hunt for money? Are they really trying to increase revenue? Or do they automatically hit their default mode every time a budget crisis looms?

Some observers think that governments dismiss attempts to increase revenue via increased trade with other nations too quickly and move to their particular default mode.


Where Could the UK Find 1.3 Billion Consumers Wanting to Buy British Goods?

Well, India, for one. And they’re a Commonwealth nation. Ta-Da! See? It’s sooo simple.

All the UK government must do is to reach out to India’s leaders (especially post-Brexit, but nothing stopping them from getting started now!) in the interests of ramping-up trade by at least one order of magnitude.

Why should India purchase trillions of rupees worth of goods from non-Commonwealth nations when they could purchase them from the UK?

Why does India purchase their aircraft carriers from Russia, their fighter-bombers from Russia, other significant navy ships from Russia, and billions worth of goods from China, the southeast Asian nations, and the United States?

A century ago, Great Britain’s trade relations with India were booming. Shipyards couldn’t build ships fast enough to keep up with the annual increase in trade.

Who dropped the ball?

Heads should roll for allowing that relationship to falter — a relationship of prime importance to both the UK and to India!


Never Mind Playing the ‘Blame Game’ There’s No Time!

UK Trade With India

Instead of UK government departments fighting each other for funding, the government should work to ramp-up trade with India to increase Britain’s GDP by 5 per cent.

We need to get a piece of that rapidly growing and rapidly modernizing economy, and thereby add five per cent to Britain’s annual GDP.

Yes! More money will solve all of Britain’s spending problems… but it isn’t going to fall out of the sky and land in the Treasury building by itself!

Someone! Anyone! Perhaps the Prime Minister or the Foreign and Commonwealth Secretary (or both) along with the Queen should invite Prime Minister Modi of India and his high officials to London, for an unprecedented and long overdue re-look at the macro relationship between the two countries to see how increased trade could improve the economies of both nations, and how each nation can play to their own strengths and work to offset each other’s weaknesses.


Instead of UK Government Departments Fighting Each Other for Funding – Increase the Available Revenue Pool for All Departments

Companies fight over ‘market share’ because that’s what companies do. And it is often a vicious competition.

However, governments have an unparalleled advantage here because they can increase the overall size of the market — which, using this metaphor, relates to UK GDP.

By dramatically ramping-up trade with India the government could increase GDP by five per cent, easily meet the spending requirements of all departments and still have the economic clout to run balanced budgets indefinitely.

This so badly needs to be done that Brexit is a side-show by comparison, although without Brexit it would be difficult to enter into new trade arrangements with any non-EU country.

In summary, Brexit is merely the means to an end — an end with a much stronger economy for both Britain and India, and a stronger Commonwealth partnership.

Boosting Britain’s GDP 5% in three easy steps

by John Brian Shannon | October 18, 2016

Opportunities as big as the sky abound regarding UK exports to developing nations that need everything, and needed it yesterday.

India with 1.5 billion people now and 2.2 billion by 2025, need massive upgrades to their electrical grid. Although India has made great strides in recent years, some 400 million people living in rural areas of the country have never had electricity.

Britain - ready to export electrical grid expertise

Is Britain ready to export electricity grid expertise and grid components to India’s 400 million citizens who have never had electricity in their homes? Such opportunity with real benefits for both nations!

Filling that need over the next two decades will cost hundreds of billions of dollars (if the Americans do it) but that begs the question Why leave it to the U.S.A. alone?

Such an opportunity represents hundreds of billions pounds sterling if the UK takes on part of that project — with significant opportunities to earn revenue by financing such projects — financing which are likely to be guaranteed via some combination of Indian government bonds, World Bank funding, and IMF loans.

Not only that, of course. India has a growing middle class with real purchasing power that want to purchase quality cars and trucks, housewares, electronics, and just about any product manufactured in the UK.

Further, Indian corporations need access to world class financing and market exposure afforded by the London financial sector, and some of the world’s preeminent legal and architectural firms have an obvious role in helping India to become all that it can and should be.

GCC kingdoms are always searching for evermore high-end warplanes and civilian jetliners, and they are always quick with the money. And, especially nice, no bickering when it comes time to pay the bill.

The GCC has transformed in recent years due to massive expansion in the formerly sleepy fishing villages of Dubai, Abu Dhabi, and Ras Al Khaimah — turning them into thriving financial centres, replete with stunning architecture and residential communities.

In fact, some of the most famous buildings in the world are located in those three cities and were designed by world class architects based in London, engineered by the most advanced engineering firms in the world, along with a host of other services such as project management, financing and property management, many London-based.

In the GCC, it isn’t about whether they have the money, because they sure do. It’s about having a presence and being there to meet opportunities as they arise.

In places like Dubai, major projects are envisioned, mooted, and completed in less than four years. Which is about the amount of time it takes to get just a simple development proposal permit approved in some cities. The message there is; Don’t nap, or you’ll miss it.

Brazil. The country’s formerly strong economy has taken some shocks in recent years. Both economic and political shocks have caused damage to the Brazilian economy, but that also presents many opportunities for investor groups. Huge Brazilian conglomerates that are barely holding together for now could be a real bargain for investors with sterling to spare.

What is great about commodity based economies is that when the price rises, it doesn’t get any sweeter. And when commodity prices are low, it’s almost always a good time to buy stock in those companies, or just buy the whole company.

Sugar from Sugarcane – and Biofuel Made from Sugarcane

Companies like Cosan and Raizen have the advantage of selling their sugarcane in two very different markets.

If the price of sugar is high, then the twice-yearly sugarcane crop gets sold as sugar commodity, or as finished sugar product at the retail level.

But when sugar prices drop, those same corporations simply sell their sugarcane to the huge biofuel market in Brazil, where 92.9% of Brazil’s cars run on a minimum 22% biofuel blend (E20) as mandated by Brazilian law, with many cars burning 100% biofuel (E100) which significantly lowers vehicle emissions and respiratory related healthcare spending across Brazil’s largest cities.

Britain - International Trade. Image courtesy of Raízen.

Raízen, the joint biofuel venture between Royal Dutch Shell and Cosan Ltd. is the 3rd-largest energy company in Brazil. Image courtesy of Raízen.

“A life cycle assessment by the Yale School of Forestry on jatropha, one source of potential biofuels, estimated using it could reduce greenhouse gas emissions by up to 85% if former agro-pastoral land is used — or increase emissions by up to 60% if natural woodland is converted to use.

In addition, biofuels do not contain sulfur compounds and thus do not emit sulfur dioxide.”  — Wikipedia Aviation Biofuel

Aviation Biofuels

With global aviation accounting for 2% of total anthropogenic (human-caused) CO2 emissions, now is the time for Britain to legislate 50/50 blends of biofuel and conventionally sourced petroleum aviation fuel. Many airlines are already doing exactly that. Notably, the US Navy is doing the same as part of it’s Great Green Fleet programme. Biofuels can also help to moderate jet fuel costs when conventional fuels skyrocket due to wild price swings.

By switching commercial aircraft to 50% biofuel blends, aviation related CO2 emissions would drop by half and respiratory illness healthcare spending would drop by billions.

Summary

What makes these three opportunities so tantalizing are the sheer numbers; India with 2.2 billion consumers by 2025, the GCC nations with their unquenchable thirst for the trappings of a wealthy society, and Brazil for it’s commodities, especially the sugar/biofuel synergy with the opportunity to cut global aviation emissions by half.

With the right vision, the right approach by the British government, and some dedicated effort and follow-up by HM government, it should prove to be a cakewalk to grow the British economy 5% by 2021 (separate from already planned growth) on the strength of those three opportunities alone.


Related Articles:

Read: Sweetening The Biofuel Sector: The History of Sugarcane Ethanol in Brazil

Read: Sugar-Cane Fuel Wins in Brazil as Cheap Ethanol Beats Gasoline

Read: Shell and Cosan invest $1 billion to boost Brazilian biofuels