India is on the cusp of a take-off and “we must not miss this opportunity,” former Chief Economic Adviser in the Manmohan Singh-led UPA government and the World Bank’s Washington-based Chief Economist Kaushik Basu told Prime Minister Narendra Modi.
While 10 per cent growth seems unlikely, sustained 8 per cent per annum growth is possible and this will transform the nation in 20 years, with per capita income breaching the $10,000 mark, he said.
“Determination and passion are important but not enough to drive a complex machinery like the modern economy…They need to be backed up with data, analysis and strategic thinking,” Dr. Basu said in an exclusive e-mail interview to The Hindu .
He also said that India looks best placed to provide an engine for the world economy. “India is one of the brightest spots in this firmament [protracted global growth slowdown since 2008]…It is expected that India will top the world’s growth rates table of major economies this year…This has not happened before.”
With China’s economy in a tough phase, the U.S. economy, which grew at an ‘impressive’ 3.7 per cent in the second quarter of 2015, and now has unemployment down at 5.1 per cent, is acting as a bit of an engine for the world, he said. “The world economy today is too enormous to run on a single engine and needs other drivers…Interestingly, the country that looks best placed to provide the second engine for the world economy is India.”
It is possible for India to step up its exports, be a hub of global education, and take major strides in the manufacturing sector but for all this a combination of policies is needed, ranging from exchange rate management to micro-level stimuli, Dr. Basu told Prime Minister Modi, “in a very good meeting on the economy.”
Take, for instance, he said, even a simple phenomenon like a sharp rise in the price of onions. “This cannot be ended by sending out baton-wielding police…We need research to understand its source and then devise policies which will entail a mixture of micro-economic and macro-economic interventions.”
Dr. Basu stressed that India is a diverse society and “we have to strive for greater inclusiveness so that all individuals, irrespective of their caste, race and religion, feel a part of society.” This, he said, will bring out the best in the people and help nurture the nation’s development.
With no end in sight of the global economic crisis even after seven years, he said it should be called the Long Depression. “The global economy is going through a difficult phase…The global growth slowdown we have seen since 2008 may be less deep than the Great Depression, but it is turning out to be more protracted than the Great Depression was…We are now in the seventh year of this crisis and the end is not in sight…Maybe we should call this the Long Depression.”
He said the World Bank had in June forecast a growth of 1.5 per cent for 2015 for the Euro area, but with the recent turbulence in China and given the strong trade links between China and Germany, this will have to be revised downwards.
China, he said, has a difficult stretch ahead since it has to perform the balancing act of curtailing its large overall debt without slowing down the real economy too much. “That’s a fine line.”
A U.S. rate hike may not be as effective, he said, with so many central banks currently injecting liquidity, “…it is unlikely to achieve the increase in interest rates across the U.S. economy that would have occurred in a less globalised world…the main thing that will happen as a result of a Fed rate hike is that the dollar will get strengthened.”
(Full interview at http://thne.ws/1NjupDV )
