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The setting could not have been more apt. Corporate leaders, bankers, industrialists and policy-makers in Indias financial capital got a rare opportunity to listen to and quiz Martin Wolf, the globally acclaimed Chief Economics Commentator of the Financial Times and a leading public policy intellectual, at a time they all remain worried about global and local economic uncertainties. Wolf was hosted by the latest edition of Express Adda, held at the Olive Bar & Kitchen in Mahalaxmi, Mumbai. And the interest in his views was reflected in the venue overflowing with the movers and shakers of Mumbai. Adi Godrej, Chairman, Godrej Group, co-hosted the session with Shekhar Gupta, Editor-in-Chief of The Express Group. The guests included Kotak Mahindra Vice-Chairman and Managing Director Uday Kotak, RPG Group Chairman Harsh Goenka, HCC Chairman and Managing Director Ajit Gulabchand, Edelweiss Capital Chairman Rashesh Shah, Deutsche Equities Investment Banking Head Sanjay Agarwal, Kotak Investment Banking MD Falguni Nayar, Eros Internationals Krishika Lulla, Chairperson and MD, UBS India, Manisha Girotra and BMC Commissioner Subodh Kumar. Excerpts from Wolfs comments:
On how the global financial crisis is shaping:
There is a possible implosion of the developed world which is still on the cards, though I think the risk has slightly reduced in the last couple of months. But we are in a contained depression in the developed world and the situation is going to go on for quite a few years. I tend to be more optimistic now than I was two months ago because, if you are facing a true meltdown, the best thing that you can have is a central bank that is wiling to print infinite quantities of money and, until a few months, we only had the Fed (Federal Reserve of the US) willing to do this but the ECB (European Central Bank) is following the same path and, in the short run, it makes the crisis more remote.
On the impact of this crisis on India and the world:
Since the developed world remains half of the developed economy and most of the final consumer demand is still coming from the developed world and most of the worlds dominant financial institutions are western, this is obviously a threat to everybody. I would say that, of the emerging countries, India is probably the most immune to the crisis. Compared to other BRIC countries, it is less dependent on foreign demand, less dependent on foreign finance, less dependent like Russia on commodities and less dependent on exports like China. If India gets into a tremendous mess this year, it will be entirely and completely home-grown.
On less globalisation in India and its impact on growth:
While reducing your exposure to the world economy may reduce the risk of volatility in the short run, it might also lower growth very significantly. Its pretty clear that China started rapid growth earlier and sustained it faster and is supposed to be more exposed to the world economy. But the reason why it did was that Chinas growth was built in large measure on export-oriented manufacturing. It generated jobs, foreign currency and learning by doing, and made China the manufacturing powerhouse of the world and I dont see why India could not have done some of these. Increased amount of globalisation would have made India a little more vulnerable to the world but much much richer now. There would be far more jobs, less dependence on service sector than it is. I believe that, in the area of trade, India could be more globalised. It is quite possible to imagine that if India had done what it has done 20 years back, its GDP would now have been three-four times higher than it is.
On the possibility of 9-10 per cent GDP growth rate in India:
Given the policy settings and structure in India as it is today, I dont believe 9-10 per cent growth is possible. I may be wrong. I also believe that, with the right policy setting, it should be easily available but the right policy settings do involve quite a number of changes and not all these changes are necessarily going to happen.
On what India needs to do to push growth:
It is perfectly true that it will be politically very difficult in India to create mass-industrial labour force working very long hours at very low wages. If it is politically impossible to create the condition that allows mass industrialisation in India for reasons of labour law, the consequence has been over a very long time. It is the failure of the organised sector in India to grow, employ people and create a highly geolistic economy. In India it has to happen and politicians will have to work out a way of making this possible politically. I cant see it becoming a truly developed nation from where it is now, without developing a world-class manufacturing sector. If India has to grow at 9-10 per cent, then reforms would be needed in infrastructure, education, power, land policy, healthcare, labour market. Those are the things that will determine if India will become a developed nation which is obviously the issue here.
On the solution to the crisis free markets or more regulation?
In general, I favour liberal markets but in the banking system there are no free markets. It would be theoretically possible to move to a world where very large banks could collapse like ordinary businesses but we dont live in that world. The regulators are currently trying to engineer a situation where banks could fail like other institutions without bringing the world down. In order to do that, you have to regulate them and stop them from doing things which make it impossible to let them collapse. For example, if you allow them to develop an infinite network of relations with other banks, then its very difficult to let them collapse because if you let them collapse then lots of others would go down and that was the worry and crisis in 2008.
On the role of emerging economies going forward:
If there is a future for global capitalism, it has to come from you, China and from the rest of the place where things are working. I think increasingly the view in the developed world is that things are just going to get worse, the future isnt ours and people know this. They are ageing societies and that themselves make them conservative. In the longer run, I tend to be optimistic about the US but it will take a very long time, in the European countries the problems are bigger, ageing is a bigger problem, and the structure of economy, in most cases, is not good.
On rising inequality in the world
Inequality is rising in most parts of the world, it has exploded in China. The only significant country where inequality has been falling is Brazil which has one of the highest inequality levels in the world. While inequality within the countries is rising, interestingly, inequality in the world is falling and that is simply because the average income of relatively poor countries has been rising faster than the average income of relatively rich countries. They will continue to reverse until India moves above average and then you will start getting worse again.
On whether Angela Merkel is a statesman or politician:
I think she is certainly a politician but she is a very shrewd politician. Whether she will be a statesman, we dont know yet. Somehow or the other, she is trying to pull off the trick of keeping the Germans sufficiently happy with the Euro and it involves doing things needed to keep it together. A more interesting question is, do I think there are any statesmen on the globe at the moment and the answer is, at the moment I cant think of one.
India most immune to the financial crisis - Indian Express
On how the global financial crisis is shaping:
There is a possible implosion of the developed world which is still on the cards, though I think the risk has slightly reduced in the last couple of months. But we are in a contained depression in the developed world and the situation is going to go on for quite a few years. I tend to be more optimistic now than I was two months ago because, if you are facing a true meltdown, the best thing that you can have is a central bank that is wiling to print infinite quantities of money and, until a few months, we only had the Fed (Federal Reserve of the US) willing to do this but the ECB (European Central Bank) is following the same path and, in the short run, it makes the crisis more remote.
On the impact of this crisis on India and the world:
Since the developed world remains half of the developed economy and most of the final consumer demand is still coming from the developed world and most of the worlds dominant financial institutions are western, this is obviously a threat to everybody. I would say that, of the emerging countries, India is probably the most immune to the crisis. Compared to other BRIC countries, it is less dependent on foreign demand, less dependent on foreign finance, less dependent like Russia on commodities and less dependent on exports like China. If India gets into a tremendous mess this year, it will be entirely and completely home-grown.
On less globalisation in India and its impact on growth:
While reducing your exposure to the world economy may reduce the risk of volatility in the short run, it might also lower growth very significantly. Its pretty clear that China started rapid growth earlier and sustained it faster and is supposed to be more exposed to the world economy. But the reason why it did was that Chinas growth was built in large measure on export-oriented manufacturing. It generated jobs, foreign currency and learning by doing, and made China the manufacturing powerhouse of the world and I dont see why India could not have done some of these. Increased amount of globalisation would have made India a little more vulnerable to the world but much much richer now. There would be far more jobs, less dependence on service sector than it is. I believe that, in the area of trade, India could be more globalised. It is quite possible to imagine that if India had done what it has done 20 years back, its GDP would now have been three-four times higher than it is.
On the possibility of 9-10 per cent GDP growth rate in India:
Given the policy settings and structure in India as it is today, I dont believe 9-10 per cent growth is possible. I may be wrong. I also believe that, with the right policy setting, it should be easily available but the right policy settings do involve quite a number of changes and not all these changes are necessarily going to happen.
On what India needs to do to push growth:
It is perfectly true that it will be politically very difficult in India to create mass-industrial labour force working very long hours at very low wages. If it is politically impossible to create the condition that allows mass industrialisation in India for reasons of labour law, the consequence has been over a very long time. It is the failure of the organised sector in India to grow, employ people and create a highly geolistic economy. In India it has to happen and politicians will have to work out a way of making this possible politically. I cant see it becoming a truly developed nation from where it is now, without developing a world-class manufacturing sector. If India has to grow at 9-10 per cent, then reforms would be needed in infrastructure, education, power, land policy, healthcare, labour market. Those are the things that will determine if India will become a developed nation which is obviously the issue here.
On the solution to the crisis free markets or more regulation?
In general, I favour liberal markets but in the banking system there are no free markets. It would be theoretically possible to move to a world where very large banks could collapse like ordinary businesses but we dont live in that world. The regulators are currently trying to engineer a situation where banks could fail like other institutions without bringing the world down. In order to do that, you have to regulate them and stop them from doing things which make it impossible to let them collapse. For example, if you allow them to develop an infinite network of relations with other banks, then its very difficult to let them collapse because if you let them collapse then lots of others would go down and that was the worry and crisis in 2008.
On the role of emerging economies going forward:
If there is a future for global capitalism, it has to come from you, China and from the rest of the place where things are working. I think increasingly the view in the developed world is that things are just going to get worse, the future isnt ours and people know this. They are ageing societies and that themselves make them conservative. In the longer run, I tend to be optimistic about the US but it will take a very long time, in the European countries the problems are bigger, ageing is a bigger problem, and the structure of economy, in most cases, is not good.
On rising inequality in the world
Inequality is rising in most parts of the world, it has exploded in China. The only significant country where inequality has been falling is Brazil which has one of the highest inequality levels in the world. While inequality within the countries is rising, interestingly, inequality in the world is falling and that is simply because the average income of relatively poor countries has been rising faster than the average income of relatively rich countries. They will continue to reverse until India moves above average and then you will start getting worse again.
On whether Angela Merkel is a statesman or politician:
I think she is certainly a politician but she is a very shrewd politician. Whether she will be a statesman, we dont know yet. Somehow or the other, she is trying to pull off the trick of keeping the Germans sufficiently happy with the Euro and it involves doing things needed to keep it together. A more interesting question is, do I think there are any statesmen on the globe at the moment and the answer is, at the moment I cant think of one.
India most immune to the financial crisis - Indian Express
