International Monetary Fund managing director Dominique Strauss-Kahn was in New Delhi in the afternoon of December 2 and spoke at a Federation of Indian Chambers of Commerce and Industry (FICCI) in New Delhi. On the same day, in the evening, the economist oracle Nouriel Roubini, who is feted for having predicted the financial meltdown in 20008 and who is professor of economics at the University of New York delivered the Lakhmipat Singhania centennial lecture at Hotel Taj Palace. Though Roubini lives and teaches in the United States, he seems to retain his European composure. Strauss-Kahn remains indelibly European because he has not been transformed into an American despite his IMF assignment.
Crisis in Europe is still strong.
India has weathered the crisis remarkably well, macroeconomically.
Recovery is moving along. It is uneven and fragile.
Situation in the U.S. uncertain.
Europe -- recovery is sluggish.
There is strong internal demand in India. Chile, Peru, Colombia are doing well.
Stimulus is not a medicine without cost. We need strong medium-term consolidation measures.
Major policy challenges -- surges in financial flows, asset price bubbles.
I have to recognise the tremendous contribution made by (Y.V.) Reddy and others in the Reserve Bank of India.
Long-term capital inflows are welcome. Short-term inflows have to be managed.
Tax-payers will refuse to pay to fix financial sector problems a second time.
We do not fully understand how the real economy and the financial sector are connected.
Re-balancing global demand: countries with big surpluses will have to spend, and countries with big deficits will have to save.
Countries like China have to shift from export-led growth to domestic demand-led growth. Indian economy is domestic demand-driven.
Peak of the crisis is behind is not true.
The world is looking to Asia and to India to play its role. With rising economic power comes economic responsibility.
It is a severe economic crisis. After the collapse of Lehman, it became a global crisis.
After the fourht quarter of 2008 and first quarter of 2009, it looked like Great Depression.
Today there is a debate about recovery. For most advanced economies, the recovery will be 'U'. For the emergent economies it is 'V'. There is even a risk of over-heating.
In most advanced economies, it will be painful growth. There will be less private and public spending, more public, private saving.
The U.S. was consumer of the first and the last resort. That model is challenged. China has to shrink unless it shifts to domestic consumption.
There is a possibility of India surpassing China. In China growth might slow down. China will decelerate slowly, India will accelerate slowly.
A benefit for India -- demography. It has a huge number of young people, huge number of working people. That India is a vibrant democract is an advantage. This leads to social consensus.
India has relatively low level of leveraging of private debt.
RBI has been prudent, ahead of the curve.
Evidence suggests that openness to capital inflows in the long-term is beneficial.
There is need for greater librealisation of FDI.
Retail sector liberalisation is beneficial.
There is need for greater librelisation of labour markets.
The rate of urbanisation in India is lower than in China.
Reforms can increase agricultural productivity.
In the advanced economies, private sector losses have been socialised.
The effect of Ireland on emergent economies is modest.
It took six months to bail out Greece. There was no European stablisation fund.
Trouble is a big country like Spain.
Macro-economic data is better. Reduces risk of deflation. Does not lead to higher economic growth rate. This is good news. Bad news is zero inretest rates.
Another policy option: the way to avoid asset bubbles is to introduce credit controls and cash-reserve ratios. There is no simple assurance. Policy response of India is responsible.
Today Chia is gorwing fast. One of the risks China faces is inflation. Will China have a soft-landing or a hard-landing?
Saturday, December 04, 2010
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