IBE - Unit 11

World Economic Growth, Country Risk Analysis, Taxation in an International Economy,

Environmental Issues

1. World Economic Growth

Global growth is projected to rise from an estimated 2.9 percent in 2019 to 3.3 percent in 2020
and 3.4 percent for 2021—a downward revision of 0.1 percentage point for 2019 and 2020 and
0.2 for 2021 compared to those in the October World Economic Outlook (WEO). The downward
revision primarily reflects negative surprises to economic activity, including increasing social
unrest, in a few emerging market economies, notably India, which led to a reassessment of
growth prospects over the next two years.
Growth in US would slow down from 2.3% in 2019 to 1.7% in 2020, whereas it will pick up in
Europe to 1.3% in 2020 from 1.2% in 2019. UK’s economy will grow at 1.4% in 2020, on the back
of the assumption that Brexit will be an orderly exit. Japan has revised its growth estimate from
1% in 2019 to 0.7% in 2020. Growth in emerging and developing Asia is forecast to inch up slightly
from 5.6 percent in 2019 to 5.8 percent in 2020 and 5.9 percent in 2021. The growth markdown
largely reflects a downward revision to India’s projection, where domestic demand has slowed
more sharply than expected amid stress in the nonbank financial sector and a decline in credit
growth. India’s growth is estimated at 4.8 percent in 2019, projected to improve to 5.8 percent
in 2020 and 6.5 percent in 2021 (1.2 and 0.9 percentage point lower than in the October WEO),
supported by monetary and fiscal stimulus as well as subdued oil prices. Growth in China is
projected to inch down from an estimated 6.1 percent in 2019 to 6.0 percent in 2020 and 5.8
percent in 2021.
Trade wars between China and the U.S have a severe impact on global supply chains. Financial
stability of the world economy is under question due to policy uncertainties, loose monetary
conditions and rapid credit growth resulting in mounting debts on both the public and private
sector. To solve for this, fiscal stimulus is not sufficient. A more balanced mix of policy is required.
Policy priorities include decarbonizing economic activity; broadening access to electricity, clean
water and transport; and supporting equal opportunities in education, health care and formal
employment.

2. Country Risk Analysis

Country risk is a collection of risks associated with investing in a foreign country. These risks
include political risk, neighborhood risk, exchange rate risk, economic risk, sovereign risk and
transfer risk, which is the risk of capital being locked up or frozen by government action. Country
risk varies from one country to the next. Some countries have high enough risk to discourage
much foreign investment.
Country Risk Analysis: India
The Indian economy grew by only 6.1% in 2019, lowest in 7 years. The fall in domestic
consumption and a tighter credit situation has dragged down the growth. The private
consumption, private investment and exports have all slowed significantly. India’s government
deficit is at -7.4% at the end of 2019 expected to decrease to -7% by 2021. India is planning to
move towards a more stable price regime by consolidating public accounts, promoting
investment and industrial development and improving business climate.
IMF anticipates the government debt level at 68.5% of GDP in 2020 and 67.7% in 2021. India is
expected to becoming the most populous country by 2024 with the largest youth population as
well. However, 30% of India’s youth are NEETs, almost 25% of population is below BPL and
unemployment rate in India stands at 2.5%.
India’s strengths are Diversified growth drivers, High levels of savings and investment, Efficient
private sector; notably services, Moderate level of external debt; comfortable foreign exchange
reserves and weaknesses are High corporate debt and non-performing assets (NPA), Net
importer of energy resources, Lack of adequate infrastructure, Weak public finances,
Bureaucratic red tape and Uncertainties over certain political issues.

3. Taxation in an International Economy: USA

To meet their expenses, government need income, called "revenue," which it raises through
taxes. In U.S., governments levy different types of taxes on individuals and businesses. The
Federal Government relies mainly on income taxes for its revenue. State governments depend
on both income and sales taxes. Most county and city governments use property taxes to raise
their revenue.
Taxes on Income: The earnings of both individuals and corporations are subject to income taxes.
Most of the Federal Government's revenue comes from income taxes.
Taxes on Consumption: The most important taxes on consumption are sales and excise taxes.
Sales taxes are an important source of revenue for most states and some large cities and
counties. The tax rate varies from state to state, and the list of taxable goods or services also
varies from one state to the next.
Taxes on Property and Wealth: The property tax is local government's main source of revenue.
Most localities tax private homes, land, and business property based on the property's value.
The Federal Income Tax: A basic principle underlying the income tax laws of the United States is
that people should be taxed according to their "ability to pay." Taxpayers with the same total
income may not have the same ability to pay. Those with high medical bills, mortgage interest
payments, or other allowable expenses can subtract these amounts as "itemized deductions" to
reduce their taxable incomes.

4. Environmental Issues
United Nations Conference on Environment and Development (UNCED), byname Earth Summit,
conference held at Rio de Janeiro, Brazil (June 3–14, 1992), to reconcile worldwide economic
development with protection of the environment. The Earth Summit was the largest gathering
of world leaders as of 1992, with 117 heads of state and representatives of 178 nations in all
attending. By means of treaties and other documents signed at the conference, most of the
world’s nations nominally committed themselves to the pursuit of economic development in
ways that would protect the Earth’s environment and nonrenewable resources.
The conclusion was that a transformation of our attitudes and behavior would bring about the
necessary changes in terms of Poverty/excessive consumption by affluent population places a
damaging stress on the environment.
Environmental Issues: Air Pollution, Water Pollution, Soil and Land Pollution, Global Warming,
Deforestation, Increased Carbon Footprint, Genetic Modification, Effect on Marine Life, Public
Health Issues, Overpopulation, Household and Industrial Waste, Ozone Layer Depletion, Mining,
Natural Resource Depletion, Natural Disasters, Nuclear Issues, Acid Rain, Loss of Endangered
Species, Agricultural Pollution, Light and Noise Pollution, Urban Sprawl, Medical Waste, Littering
and Landfills.