ABENOMICS

This new term has been in news for some time now. The term originates from the name of the Japanese Prime Minister Shinzo Abe and indicates the ‘set of economic measures’ he took to rejuvenate the sluggish Japanese economy from the spells of recession-like situation—after his December 2012 re- election to the post he last held in 2007. This is also known as the ‘Three Arrows of Abenomics’ — the three economic measures under it are:

(i) Fiscal Stimulus: The government has initiated a massive fiscal stimulus to encourage public and private investments in the desired areas of the economy—investment in public works/infrastructure (which are by now 50 years old and need heavy investments), fiscal, concessions to private sector companies which invest in research & development, create jobs, increase salary, etc.

(ii) Quantitative Easing: The Bank of Japan (its Central bank) has been maintaining the official interest rate (like India’s Repo Rate) near sub- zero to encourage lending by the banks. The aim is to double the amount of money in circulation by 2014 and reach the annual inflation target of 2 per cent. This makes the Japanese currency (Yen) to depreciate, too. Thus, this measure is intended to boost both domestic and external demands to propel the growth prospects of the economy. This measure, while at one hand increase the government expenditures, at the other it cuts the government’s tax revenue, too – leading to higher fiscal deficit. This measure revolves around the current strength of the economy to ‘absorb’ higher levels of inflation (which plays a major role in the growth process).

(iii) Structural Reforms: Under this measure the government has promised a variety of deregulations in the economy, mainly aimed at increasing ‘competitiveness’ of the economy and attaining a sustained growth path. This arrow still remains least concrete. By now, the government has set up a Group of Experts (mainly formed of CEOs of large, medium and small companies) that is supposed to propose suitable measures to the government in the next three years regarding required set of ‘structural’ reforms needed by the economy. This measure also includes Japanese plan to ‘join’ TPP (Trans Pacific Partnership) and to go for a new FTA (Free Trade Agreement) between the countries in the Asis-Pacific region aimed at increasing its export potential.

The Three Arrows of Abenomics are a suite of economic measures which any economy may try in situations of any of the bad stages in the ‘Economic Cycle’. Such economic measures were suggested by J. M. Keynes for the first time (in wake of the Great Depression of 1929). Today, its most famous exponent is the Nobel Economist Paul Krugman. Meanwhile, experts have mixed opinions on the success possibilities of the Abenomics.