Not listening to the so-called market-friendly advice has held Indian economy in good stead, helping it buck the ravages of the recession
Should Greece matter to the residents of Gurgaon? The answer: yes. Whether we like it or not, the world has become inexorably interconnected. What happens in one corner of the globe could have unexpected consequences for those very far away.
The financial systems of the 190-plus nation-states on the planet have become more integrated than ever before and this is an important reason why talk about the proverbial green shoots of survey has become muted over the last few months.
Even before the heads of government of twenty countries met at Toronto, Canada, to discuss the “fragile” and “uneven” recovery that has taken place since the Great Recession of 2008-09 – the worst the world has seen since the late-1930s – it was evident that many developed countries in Europe would not revert to a business-as-usual scenario for some years now, that progress would be excruciatingly slow.
Most agencies of the United Nations agree that even after the financial sector revives, new employment opportunities would not be created in a hurry. After combined total international exports and imports dipped by a proportion close to 15 percent in 2009 for the first time in more than seven decades and investment flows shrunk by almost a quarter, there is a growing realization that trade and investments would grow only gradually during the current calendar year. Far from a ‘V’ shaped recovery path, political leaders and economic analysts alike apprehend a ‘W’ or double-dip recovery, while the more pessimistic among even talk about future trajectories of economic growth resembling the acronym of the internet or the world-wide web.
We, in India, can consider ourselves fortunate that the gung-ho liberalizers in the government were often over-ruled by saner elements in the bureaucracy who cautioned the political leadership against speeding headlong along the road to financial integration with the rest of the world. Unlike banks and financial institutions in Europe and the United States, the performance of Indian banks actually improved during the crisis period when measured against yardsticks of prudence.
One particular technocrat, an officer of the Indian Administrative Service, who acquitted himself with considerable élan during that period was the former Governor of the country’s central bank and apex monetary authority, the Reserve Bank of India, Dr Yaga Venugopal Reddy who completed his term just a fortnight before Wall Street melted down in the middle of September 2008. It is, therefore, important to listen carefully to his words of wisdom, which ran contrary to the conventional “wisdom” that emanated out of North Block those days.
Speaking at a discussion organized by the Indian Council for Research on International Economic Relations, he remarked that while this country had in no way contributed to global financial imbalances, it has a huge stake in the process of unwinding of these imbalances and its impact on exchange rates. Significantly, he added that the most important lesson of the global financial crisis was that free capital account convertibility and free mobility of capital did not contribute to economic stability but were potentially destabilizing elements.
Dr Reddy pointed out that since financial markets did not treat all countries equally, there was a need for developing economies like India to seek “self-insurance” and that the world was today willing to appreciate India’s economic experience in this regard. He was hopeful that India’s growth story would be relatively unaffected by the ongoing sovereign debt crisis in a number of Eurozone countries, notably Greece.
The short point: India was saved from the worst ravages of the international financial tsunami because it chose to cautiously court globalization, despite advice to the contrary by so-called market-friendly bureaucrats and politicians, not to mention corporate captains close to them.
Paranjoy Guha Thakurta
The writer is an independent educator and a journalist with over 33 years of experience in various media – print, radio, television, the internet and documentary cinema.
To write to the author, please send an email to dare@cybermedia.co.in with the subject line 'Paranjoy Guha Thakurta'.
Disclaimer: The views expressed here are that of the author and do not represent the magazine's.
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