Oil price and capital flow shocks are two potential risks for India from the uncertain global geopolitics, former governor of the Reserve Bank of India (RBI) Y.V. Reddy said here on Tuesday.
“In the short term, at least there are two potential risks that may arise from Middle East-Iran and US-China [trade war]. There are two likely sources of impact – oil price shock and capital flows. And, the country most vulnerable to these two shocks is India,” he said.
Mr. Reddy, who was addressing a two-day leadership conclave being organised here by the Institute of Advanced Studies in Complex Choices in association with XLRI Jamshedpur, said “in fact these are the only two shocks that our external sector is vulnerable to”.
Stating that it was also important to take note of the new bi-polar world that is emerging, he said “in the old bi-polar world, Russia and America were different spheres. The inter-linkages were minimal. [Whereas] today the linkage between Chinese economy and US economy is very strong. At the same time they are quarrelling”.
“Coming from a village, I can understand this politics, especially in Kadapa district [of Andhra Pradesh] where two landlords fight with each other till such time others challenge them. The moment others challenge them, they join together. So therefore it is a new bi-polar world where the rest of the world is at the mercy of the two [the U.S. and China]. It is new dynamic geo politics,” Mr.Reddy said.
He also underscored the need to work towards addressing the challenges posed by climate change, demographic divergences and technology. Collective action is inevitable on climate change, but becoming increasingly difficult, he said.
While demographic divergences were seriously affecting the macro-economic balances and more important the compulsions to migrate, there is, as yet, no agreement on managing the migration that is inevitable. Technology is the third important element that will disturb the global balances in future, Mr. Reddy added.
