Kaushik Basu warns of crisis in 2014
“The year 2011 has been an echo of 2008 when sovereign governments in US and Europe stepped in to rescue banks that were doing badly, which put all the money generated by the government to rescue corporates. Public debt to GDP ratios went up to 100 per cent for Europe and 200 per cent for Japan while it remained 45 per cent for India,” he explained.
“Moreover, Spain, Italy and Greece were finding it difficult to borrow and were on the verge of default following which the European Central Bank (ECB) stepped in and lent $1 trillion to 800 banks, who in turn lent to governments. In the next three years, that is by 2014, it will be time to repay these loans. Since fiscal consolidation plans in these countries are poorly drafted, there could be another crisis coming,” Basu warned.
To tackle the coming crisis, India must boost exports in the next two to three years, he said. “At one point, China was the world’s workshop, which led to rising wages. India can come into the space vacated by China in manufacturing. A couple of policies would be needed to encourage this sector,” he said.
The global slowdown is very real and India is replicating this pattern,