Talking from experience and not so much from scholarship, the first point I would like to make is that managing an economy in the global context is like driving a car on a highway. The highway is full of traffic. The traffic consists of all modes – hand carts, bicycles, two-wheelers, four wheelers, heavy vehicles and pedestrians. Some rules for managing traffic do exist but nobody cares to follow them. There is no one defined authority to enforce the rules. So, my safety does not depend only on how good a driver I am, it depends on how good or bad the others are.
Economic crises are not an unknown phenomenon. In an interconnected world, however, their intensity and spread are becoming increasingly frightening. National economic crises such as the ones in Mexico, Brazil, Argentina or Turkey had national, regional and a limited international impact. The East Asian crisis was multinational and engulfed a whole region. It had deep impact on countries well beyond that region and called for global action and global understanding. I recall the various discussions we had at regional and global levels to predict and prevent such crises and meet their challenge. However, as soon as conditions became normal again all the hectic activity of the past years was forgotten and it became business as usual.
It was the sub prime crisis of the US in 2008- 2009, however, which turned out to be a real tsunami. It was entirely unpredicted. It hit the US hard and the rest of the world with greater force. The world is still struggling with the aftermath of this crisis. We are waiting with bated breath about the outcome of the crisis in Greece and the impact of tapering by the US Fed. We are equally concerned with the absence of any signs of pick-up in Japan and the policy induced slow-down in China. The only signs of hope are in the US and India. One only hopes that the sharp fall in growth rate in the first quarter of 2015(0.2%) in the US is temporary and the situation will improve in the coming quarters.
As far as India is concerned it is one of the larger global economies with a GDP of over 2 trillion US dollars and is now ranked as the third largest in terms of purchasing power parity. Our own estimate of the current fiscal’s growth is 8.5% though the latest World Bank projection is 7.5%. There are downside risks, both domestic and global but, if no major risks emerge, India’s economy, according to our projections, may grow at the rate of 8 – 10% per annum over the next 15 years.
The following important questions remain –
how are commodity prices going to behave in future, specially crude petroleum prices.
how is global trade going to grow.
how are major global currencies going to respond to the emerging developments.
how will global inflation turn out in the coming days.
how will some of the conflicts specially in Ukraine resolve themselves.
how will stock markets respond to some of these developments
We shall never have the controlled conditions of an operation theatre
for managing our national economies and the global economic environment. However, we should control the circumstances wherever we can.
In the medium term we need a global understanding on the following
The need for a global mechanism to maintain a constant vigil on national and international economic developments and warn and advise nations and the international community on how to deal with such developments. The IMF is indeed charged with such a responsibility but its track record is far from inspiring. If it was, there would have been no need for the G-20. Will a reformed and restructured IMF fill the bill? It is an issue for discussion.
Once a consensus is arrived at how will it be enforced or followed up? Do we need an Economic Security Council?
What is the responsibility of the developed countries towards the less or least developed countries? This should include not only aid and technical assistance but also environmental and trade issues.
How are global fund flows going to be regulated, if at all, specially the hot money flows? Can nation states impose exit conditions?
The ultimate aim of all policy, specially economic policy is to contribute to making the life of the common man economically secure and provide him with a decent standard of living. These are still distant dreams.