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India could be the world’s dominant growth story when the economic history of the second quarter of the 21st century is written, said economist Lawrence H. Summers, who has played a key role in shaping the US government’s response to various episodes of global economic stress in recent history, including as the treasury secretary in the Clinton Administration.

“I believe in the ultimate economic power of India," Summers said in a conversation with Mint editor-in-chief Sruthijith K.K at the Hindustan Times Leadership Summit 2021.

Summers said he was hopeful that India could grow at nearly 10% for 15 years, helped by factors such as rule of law, vast entrepreneurial energy, strengths in digital technologies and a remarkable non-resident India diaspora. “I believe unlike the vast majority of countries in the world, that is possible for India."

But there’s work to be done.

“I believe that requires public policies that have historically been difficult in India. It requires a government that is not just energizing and reforming the economy but is prepared to liberate the economy from government stricture and control. It requires a sense of political stability," he said.

Summers has also served as the director of the US National Economic Council, chief economist of the World Bank and president of the Harvard University, where he is currently president emeritus.

Speaking a day after the US Federal Reserve said it might accelerate the winding down, or tapering, of the liquidity support it provides through an asset purchase programme, Summers said emerging markets might not see a response like the “taper tantrum" that was witnessed in 2013, which roiled financial markets and currencies in emerging markets including India.

“I think the world is a different place. I think any withdrawal or taper that comes now will be the most widely anticipated one in the history of the world. I think this has been so heavily telegraphed and so substantially discussed that I would be surprised to see in the immediate aftermath of a taper, the kind of sharp response that we saw in 2013. If anything, the 2013 fears have contributed to the maintaining of quantitative easing for too long a time."

Summers, who has been flagging the risk of persistently high inflation as a consequence of the large stimulus package in the US, is being seen as having won the intellectual argument against several economists as well as the US central bank, who supported the package and argued that inflationary impact will be transitory.

The consumer price index in the US, a measure of inflation, is now at a 31-year high.

“I think in the US, we overdid…and supported incomes to the point where disposable income in 2021 was substantially greater than anyone expected it to be prior to the advent of covid. That is what I think generated the inflationary pressure."

Summers said it was too early to know the economic impact of the Omicron variant, but it was unlikely to have a major impact on inflation as it affects both supply and demand.

“It is important to recognize that because Omicron affects both supply and demand, it is not likely to have an immense impact on the rate of inflation," he said.

On regulating cryptocurrencies, a measure that the Indian government is actively exploring, Summers said he advocated neutrality when it came to viewing cryptocurrencies.

“Cryptocurrency should be tested in the market on level playing field. There should be no reason why it should be easier to launder money with a cryptocurrency than with cash. There is also no reason why the blockchain should be opposed rather than more traditional payment rails. So, the principle should be neutrality. You cannot avoid money laundering or know your customer rules. You cannot facilitate evasion of taxes. You cannot find it easier to engage in illicit transactions because you are using cryptocurrency. Equally, economic freedom requires the freedom to innovate and, as long as that principle of neutrality is respected, there is no reason why I should not be able to make a transfer of funds to you using whatever technology I wish," he said.

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