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India must take inclusive growth more seriously

India must take inclusive growth more seriously
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First Published: Mon, Oct 27 2008. 10 32 PM IST

Unequal partners:Jean-Pierre Lehmann says WTO negotiations are generally preceded by dialogue, but there was none at the Doha Round which, he says, discriminated strongly against developing countries.
Unequal partners:Jean-Pierre Lehmann says WTO negotiations are generally preceded by dialogue, but there was none at the Doha Round which, he says, discriminated strongly against developing countries.
Updated: Mon, Oct 27 2008. 10 32 PM IST
New Delhi: Professor of international political economy at the IMD business school in Switzerland, Jean-Pierre Lehmann says that while the centre of gravity of global financial power will shift to Asia after the current meltdown, this transfer will be chaotic. And India, adds Lehmann, who is also the founding director of the Evian Group, an international advocacy body for an equitable and sustainable global market economy, definitely hasn’t done enough to reduce poverty in the country. Edited excerpts:
What do you see as the root cause of the current global financial crisis?
Unequal partners:Jean-Pierre Lehmann says WTO negotiations are generally preceded by dialogue, but there was none at the Doha Round which, he says, discriminated strongly against developing countries. Harikrishna Katragadda / Mint
I think it is an institutional failure... You must be aware that along with the financial crisis, we have also got paralysis in trade policy area, we are not really moving forward on the climate change agenda, (and) we have this problem of inclusion where there are a huge number of people living under poverty.
You also have the unregulated banking sector where people are not only allowed but also encouraged to make huge profits on a very short-term basis in dubious conditions. And this seems to have generated some self-perpetuating momentum until the crisis hit.
How much time do you think it will take for Europe and the US to recover from the current crisis?
This is very difficult (to predict).... I would say minimum a year... Hopefully by 2010. A lot of what has happened is not unexpected. There is a sense of trepidation, that there may be things coming up that we may not know. I guess there are three scenarios. One is that this is the bottom of the crisis and (it will) persist for a while, (and) after a year or two, we (will) see a recovery. The other one is that wrong policy decisions are taken and the crisis gets much worse. The biggest risk is protectionism. The policy makers who have protectionist inclinations will find it a lot easy to purse their policies. When I am talking about protectionism, there is trade protectionism, investment protectionism and so on.
One thing that now seems to be not the case is decoupling. China’s economy is expected to grow below 8% in 2009 and in 2010 it is (expected to be) about 7%. India may be a little bit more protected, as it is less dependent on trade than China is. The idea that was prevalent in the beginning of the year that Indian and Chinese automotives will be able to sustain the global economy even if the US and the EU (European Union) economies slow down is no longer valid. So the interconnectedness of the global economy which on one hand has tremendous advantage also means that if one fails then others also go down.
Ten years ago, India was not hit by the East Asian financial crisis. However, things will be different this time around. How seriously do you think India will be hit?
One of the dangers is that neo-classical economic theory is based on the premise that ultimately, the market is rational. But I think this is to be questioned... Huge amounts of money can come in with speculative motives and could become extremely disruptive. But I think both China and India can solve this kind of situation partly because of the nationalistic sentiment.
After the dust settles down, do you think the centre of financial power will shift to Asia?
There is a very fundamental transformation that is going on in the world economy, unseen for the past 200 or more years. There are new economic players of this era like India and China. I have read Kishore Mahbubani’s book The New Asian Hemisphere: The Irresistible Shift of Power to the East and have given very good reviews. But I don’t think this shift will be linear and smooth. It will be chaotic. You (Asia) need to have the institutional framework and the people. If you look at Wall Street or London, these are global financial centres that have a global population. The rest of the UK may be saying we do not want immigration, (but) London is for more (immigration) as it gives it the languages, the networks and the accesses. There is perhaps a need for indigenous development of institutions. India may be in a better position in that respect than China. India is stronger institutionally than many other countries of the so-called developing world. It has the rule of law.
At the Doha Round of the World Trade Organization, or WTO, talks, do you think developing countries were stubborn or was it the other way round?
Some developing countries have been stubborn, but it is definitely the other way round... What struck me is that the negotiations are generally preceded by dialogue, but there was no dialogue at the Doha Round... It discriminated strongly against the developing countries, whether it is agriculture or textiles... At Doha, my sympathies were with the Indians rather than with the Americans.
You are very familiar with India for many decades. It seems the growth that India has seen, has not actually trickled down as fast as one would expect. What policy changes would you suggest for India?
You are right. Let me speak as a sympathetic outside observer. As an economy and society, in many cases it (India) is not functioning. Edward Luce, a Financial Times correspondent who was previously in Delhi, has written a book called In Spite of the Gods. We were having a conversation and he told me: “In Africa, poverty is a tragedy; in India, it is a scandal.” And I understand what he means by that. In Africa, there are all sorts of conditions, the state, the society, lack of education and so on. In India, you have very competent and bright people, very strong institutions in education like IIMs (Indian Institutes of Management) and IITs (Indian Institutes of Technology) and yet 400 million or whatever number of people are under poverty. This is cataclysm. This is not only terrible so far as the poor people are concerned, this is also a terrible indictment of the Indian establishment... My concern is how seriously the Indian establishment is taking this issue of inclusive growth. I asked a government official, he could not answer me. I said when you wake up in the morning, do you have a plan how to ensure inclusive growth? First thing that is important is the spirit, the commitment... This needs leadership, policy direction and also grass-roots commitment.
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First Published: Mon, Oct 27 2008. 10 32 PM IST