Long time before India becomes global growth engine: Rajan
RBI governor Raghuram Rajan has said it will be "a long time" before India can replace China as a growth engine for the global economy, even if it grows at a faster rate.
The comments assume significance in the wake of a China-led slowdown hurting the markets worldwide in the recent days, which has led to calls in India for taking this crisis situation as an "opportunity" as the global economy may need alternative growth engines.
Asked whether India can replace China as a new growth engine, Rajan said in an interview to BBC, "India is one-fourth to one-fifth of China's size. Even if we can overtake China in terms of growth rates, the magnitude of the effect will be far smaller for a long time to come."
As per the latest data available with the World Bank, GDP of the US is over $17 trillion. This compares with China at over $10 trillion and India $2 trillion.
After Monday's market crash, Prime Minister Narendra Modi had stressed on the need to further strengthen the Indian economy and said that the present global crisis should be converted into an opportunity for India.
Yesterday, finance minister Arun Jaitley also asserted that the global market turmoil was not a cause of "worry" and rather presents an opportunity for India to grow further by speeding up the reforms.
Stating that the world was being shouldered by a powerful engine that did not seem to be running fast enough, Jaitley said the global economy now "requires alternative engines".
Stating that China was responsible for almost half of the global growth in the last few years, the finance minister said India is now the only major economy to grow at 7-8% and "everybody else is far below".
Rajan, on his part, said that China was a big country that has "become very important to the global economy", and every adverse development anywhere in the world would certainly impact the rest as well.
He, however, said that it was wrong to attribute the problems for global markets entirely to China, as there were a number of other concerns too.
Rajan, who is credited to have seen the global financial crisis of 2007-08 coming, allayed fears of any major crisis being round the corner.
"Based on what I have seen so far there is no strong reason to believe that we are on the verge of another crisis... But we have to be vigilant about kinds of those fragilities that have built up in the last few years," Rajan said.
Rajan also warned against central bankers being overburdened to fix the struggling economies globally and said the consequences may be "more bad than good" if they actually act. He, however, added that situation was different in India where he was still faced with problems like high inflation.
Rajan said that the problems of economy should be solved through reforms and over-intervention by central banks was not a happy situation.
"I have been a little concerned about the immense burden for action that is falling on central banks. I think it is quite legitimate for central banks to say at some point we can't carry the burden ourselves. In fact, we may not have the tools to do everything that is asked of us," Rajan said.
"Don't keep asking us to do more, because at some point we get into territory where the consequences may be more bad than good if we actually act," he stressed.
Rajan acknowledged that his situation was not typical in the current climate because unlike most global economies India still has high inflation at close to 6%. Interest rates are also high at 7.25% despite having been cut three times this year to try and stimulate growth.
"In my country, I'm faced with traditional central bank problems like inflation so we still have a handle to work with those.
"But in some other countries you are faced with problems which are maybe way beyond what the central bank is capable of addressing such as demographic change, deep changes in productivity -- and those are probably best dealt with other tools," Rajan said.
"But if the other tools are not being used or there is a sense they will take too long to work and you are working with the central bank only as the primary engine you may end up in situations that actually create more harm than good. Once interest rates are at zero, it is hard to crank up new tools," Rajan said.
"Central banks have tried (and) they have tried very hard – negative interest rates, low for long, quantitative easing -- We have done a whole bunch of things like that."
The question is –- At what point do you, through additional measures, do more harm than good?" he asked.
源：http://www.hindustantimes.com/business-news/long-time-before-india-becomes-global-growth-engine-rajan/article1-1384384.aspx
Very frank and correct assessment by Dr Rajan, Indian economy will need long time to become comparable to Chinese economy, but that does not mean India should not take the opportunity, the opportunity must be taken by fiscal measures, not by monetrary measures. Monetary measures by central bank are just like gold kept in the family for rare emergencies, let economy grow from fiscal measures.
One thing which is more worrisome than Chinese stock exchange crashes is depteiciating yuan, it is apparent that depreciating yuan won't help in increasing export revenue as it will also increase the cost of imports too, since Chinese economy is dependent on import as well and coupled with increasing labor cost, net impact will be minor. Chinese economy have huge foreign reserves induced by net revenue surplus. Is yuan depreciation more related to capital outflow? If it is so then it will be a bigger concern for chinese as well as world economy than crash in Chinese stock markets. Because substantial capital outflow will ultimately decrease the Chinese national production and GDP.
Your assessment is quite right. Also the depreciating Yuan may effectively decrease the China purchase of US debt, in which case one of the largest consumer market (US) would not have money to consume, there by causing more stint in growth of consumables, there by decrease spend as well as growth.
Besides growth fear due to depreciating Yuan, there is immediate liquidity crunch looming large over Chinese economy, mad capital outflow from China may cripple inter banking liquidity system even before hitting production, contraction of Chinese economy will not be as severe as liquidity crunch-and this is the biggest concern today than stock market and economic growth. After economic stimulus package and stock proping in the stock exchanges, china is doing third mistake in rapid succession by funding liquidity by the central bank. It will again increase the debt to GDP ratio and put China in the lines of debt ridden countries like Greece. First two mistakes were avoidable but the third has become necessity. Printing currency and QE are no way to growth-thats why Dr Rajan has cautioned earlier and now.
This man speaks the truth, regardless of how bad it may sound to our self-congratulating politicians.
India will not replace China for decades yet. This country just never has been a manufacturing nation, which China has historically always been.
Add to that the totally slovenly attitude that Indians have and the filth they are so prone to create and we have a realistic assessment of the future potential of this country.
The fact that India is still eating a diet that is far from optimal has ensured there is enough malnutrition and its effects on the infants and children of India have not been pretty.
We have a great demographic dividend but half of it is stunted either physically or mentally. That is the bitter truth.
And India need not to replicate disastrous style of China too-this is also part of the essance of what Dr Rajan said.
I seem to have missed that. Could you please point out where he said it.
When he is cautioning governments and pointing out limitations of central banks around the world in context of Chinese troubles-which china seems to be tackling through monetary policies of Chinese central bank only right from economic stimulus, stock proping and to latest providing liquidity to banks to assist in capital out flows from China, the dangers of doing this are self evident following Chinese recent events. Dr Rajan's comments will be more clear in coming days when Chinese saga will unfold more before the world community. You will be mistaken If you are thinking that Dr Rajan is talking about past only but not about future.
As a matter of fact I remember reading recently that China is doing the exact opposite of what it ought to be doing. Devaluing the Yuan is not the answer, it needs to be held or up-valued.
Yes, there is possibility of a grave collapse but I am not so pessimistic about China. That country has historically been an achiever and they don't seem to have lost any essential values over time.
One point worth noting Dr Raman made few days back and that hints about seriousness of Chinese economic problems is that once these problems will become threatening to world economy then central banks of worlds top economies need to act collectively as no single central bank will be in position to tackle the problems on its own. Which i intrerpret as when major world economies has enjoyed cheap and mass churning in and out production machine of Chinese economy for many years, now then they have to share the burden together for many years to come.
I think it is a no brainer that central banks of multiple countries will have to act in concert to offset any repercussions that glitches or faults the humongous Chinese economy might create.
But that is another discussion.
Right now, I was only expressing what I think about India's prospects. Not much, as I said before. Indians just love to pat their own backs and do tend to think of themselves as God's gift to mankind. Such attitudes never get anyone anywhere (with the notable exception of the Jews)!
The present RBI Governor is brilliant and strength of India.
He could sustain all round pressure and successfully avoid interest rate cut prescribed by Media owned by Industrial Houses. This policy helps millions of poor people of India by controlling inflation. DD must start a business Channel to project views really good for whole of India and not only for few brokers and few influential Industrial Houses.
India must achieve trade surplus. For the present, as a short term measure, India must increase customs duty specially for imported goods from China. Dumping duty must be imposed on Capital Goods from China. We must also avoid devaluation of INR so that when in future the price of Crude Petroleum Oil reaches above seventy dollar, it should not hurt Indian economy.
India has enough potential to expand in steel and textiles. India will definitely latch on to the opportunity thrown by China. World won't mind investing again for products having raw materials in India. Rajan is a Congress appointee and knows how dynastic political parties working demanding their chunk from business houses. However, if Modi remains on helm for another term, India will pick the pace.
Monday’s ETF Collapse was Just A Warm-up:
this is just a fore shock to a much greater event. About half a year ago, I Tweeted that the market would crash this fall in a total global meltdown. When the market crashed this last week, I said it would rebound because a global economic collapse always happens in a series of plunges, and the first one is not the big one over the Cliff, but it's always a bad jar, like kind of fore shock you can get before a really serious earthquake. So, two days ago, I Tweeted that the market would rebound soon and America will remain insulated... They have all done true to form, and none of them are able to see that this huge shock was just a precursor to the much greater cliff to come....What we may need to learn must be understood in a sequential manner by all concerned...the statements of our Government had a total disconnect with the reality!
Really, China is in a windmill mode, as late January, Chinese Premier Li Keqiang shared the proverb with Global leaders in a keynote speech at the World Economic Forum in Davos, she is committed to structural reform “no matter how difficult.” The “new normal” called for more moderate, consumer-led growth. The financial system would be modernized and the country aimed to shift away from its excessive reliance on debt-fueled, infrastructure-powered growth that had led to industrial overcapacity and an epic credit bubble. Today China finds itself at the epicenter of a global stock market rout that has vaporized $8 trillion in wealth. Nobody is quite sure whether the world’s No. 2 economy is really growing at 7%, as official figures suggest, or 6 percent — or actually careening toward a hard landing....President OBAMA had urged China personally and officially to open their Economic-structure with upgrading the Stock Market-ball-game...Unfortunately; the Chinese were not Dr. MM Singh, and poor Chinese leaders launched a multi-pronged strategy to upgrade the country’s sprawling financial system. The agenda included an ambitious attempt to rein in the nation’s growing debt pile by curbing local governments from off-balance sheet borrowing.
Bigger, status symbol plans are underway too. The People’s Bank of China GovernorZhou Xiaochuan launched a push for the yuan to win reserve currency status at the International Monetary Fund...Let us watch and hope that the dreams of President Xi Jinping’s government are culminating without damaging any further the Dips of the Rips?
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