larry summersCharles W. Eliot University Professor and President Emeritus Harvard Universitybelieves that India is poised to become the fastest growing country in the coming years Modi government Laying the foundation. However, the former US Treasury Secretary underlined the need to pursue reforms and suggested that India focus on creating more jobs in services and manufacturing. Part:
China is seen as a global influencer due to its great threat and over-potential
China’s economic problems are linked to the suppression of consumption. The US typically spends about 70 percent of GDP on domestic consumption and even during World War II the number was closer to 50 percent. China’s consumption is running in the range of less than 40 percent. This means that there are large amounts of resources that have to be devoted to something else. At some point this has been infrastructure, but after laying more concrete in five years than the US did during the entire 20th century, infrastructure returns have diminished. Now the situation with residential real estate has become clear. China is investing heavily in capacity for export, often subsidized capacity, which has very problematic implications for the rest of the world. This is an issue that is best addressed multilaterally rather than by several countries acting individually, but it needs to be addressed. Ultimately, I see no way forward for the global economy that does not include a more balanced Chinese economy with a significantly greater commitment to consumption-led growth. I am a little encouraged by the steps taken but it remains to be seen how strong and effective these steps will be.
There are import restrictions on Chinese products due to strategic considerations, but this also means higher costs for consumers. What balance needs to be struck?
It is very important, especially when inflation has been a concern, to be very careful about self-administered supply shocks. It is important that we avoid single points of dependency for key inputs. It is important that we not be overly vulnerable to China for technologies that are for our national defense. But it is also important that we reduce the costs of inputs used by producers, as this controls prices and reduces inflation and makes our producers more competitive. The proposal for sweeping tariffs against China is almost completely misleading. The right policy involves finding a balance and limiting protection to cases where it is motivated by flexibility, national security, counterbalancing large subsidies. Seeking protection simply because China has achieved very high levels of competitiveness is a strategy that is likely to backfire in terms of the Chinese response and is likely to have adverse effects on inflation and the purchasing power of working people.
Do you see India ready to take advantage of the situation? How do you see the state of the Indian economy in the next five-seven years?
I am optimistic about India’s prospects of increasing its GDP six times by the century of independence and becoming the world’s fastest growing economy among major economies in the next five years, the next decade and the next generation. Prime Minister (Narendra) Modi, as an energetic person, has been spectacularly successful in setting up infrastructure, setting up new initiatives in physical infrastructure and in intangible areas related to payments or personal identity. I hope that in the years to come, the reform can run as strongly as it has so far to energize broad public efforts to ensure strong and diverse incentives for initiatives that allow market forces to come into play. This is how the promise of the Indian economy will be realised.
What are the major challenges?
Geopolitics is a big challenge. As the distance between China, Russia and Iran continues to grow, India will have to work very efficiently as it cooperates with the US and seeks more cooperative relations. India will have to work very hard to maintain its strong presence in IT and all things digital in the age of AI. I also hope that India can continue the process where so much progress has been made in striving outward and towards the world. The truth is that the biggest barriers to India benefiting from globalization over the last 70 years were erected by the Indian government and while there has been progress, there is still room to grow in terms of reducing barriers.
Do you see job creation as a major challenge?
This is already a major challenge and is likely to increase. Industry and manufacturing certainly have a role to play. My suspicion is that if India ultimately succeeds, it will help a lot in creating jobs in the service sector at a time when the service sector has become much more expandable globally due to IT and at a time in the manufacturing sector. Jobs are also being created. There is a lot that needs to be built in India.
You and NK Singh presented the reform roadmap for MDBs. How do you see the progress?
The good news is that I have welcomed and been gratifying the enthusiasm of the World Bank and other banks to accept many of our recommendations. On the other hand, where the rubber meets the road in terms of resource mobilization and implementation, it is less clear that the kind of transformational change that Mr NK Singh and I had aspired to is not yet in progress. We will keep a very close watch and present our views in a clear and constructive manner.
Is it time for the IMF to do a similar exercise?
Yes, the so-called Resilience Trust Fund, which was enacted post-Covid, transferred only a small amount of resources to developing countries. There is a need to explore new facilities to support the transition to a green economy, reminiscent in some ways of the System Transformation Facility that was implemented after the fall of the Berlin Wall when in a different way there was a group of economies that Long-term support was needed for structural change. Much emphasis has been placed on how the volume of loans can be increased within the World Bank’s existing financial structure, but less attention has been paid to those questions where the IMF is concerned. I’m amazed that no one was concerned that the value of the IMF’s gold reserves was half what it is today. The financial capacity of the IMF can be increased to a great extent. It is important to protect economies from external shocks and the type of facility put in place by the IMF during the period of the oil crisis, where countries simply by virtue of being in good shape, had the ability to access rapid financing if they needed a turnaround. Had to face a significant external shock due to. Changes in the interest rate environment or commodity price environment. At this point it would be worth examining closely.
