India has suddenly got into a rather unenviable position where the global community may be looking to it even more carefully, expecting it to cushion a part of the ongoing global slowdown, together with China. This has emerged as a kind of a sub-theme at the World Economic Forum Annual Meeting 2008, where the Indian contingent has been busy meeting global business leaders and CEOs and responding to their numerous queries and concerns over how India is preparing its resilience strategy in the present context.
In a way, the stage was set by PepsiCo chief Indra Nooyi at the inaugural presser of the 2008 Annual Meeting co-chairs, where she said this global turmoil would be the true test of globalisation, and how India and China fared would pretty much hold the key. And there was this concern that the global economic crisis, triggered by the US, would overshadow other important issues of this year?s Davos agenda, key among them climate change and equitable growth.
Finance minister Palaniappan Chidambaram?s strategy to counter, what he calls the ?second order? effects of the global crisis on India?s economy, will also be keenly watched. And while the finance minister was realistic in his assessment of India?s role ? together with China?s ? in driving global growth forward at a time when the developed nations are concerned about their economies, he did say that the fact that India and China are seen as engines of growth was something to be welcomed.
In fact, the view that India will, in a sense, emporarily cushion the global economy from the turmoil it has been plunged into, were in sharp contrast to the note struck on Tuesday by Morgan Stanley?s Chairman, Asia, Stephen S Roach, who said clearly that hopes of a ?decoupling? from the US were a fantasy. Roach, in fact, was particularly severe on the Fed, saying that by cutting rates so sharply, the Fed had shown that it regards defending the stock market as its primary job. On this front, however, Indian policymakers can breathe easy, but their job will be cut out following the Fed rate cut and increasing concerns over heightened capital inflows, a fact Reserve Bank of India (RBI) governor YV Reddy will doubtless have uppermost in his mind as he unveils his third quarter review of the RBI annual policy on January 29.
Commerce and industry minister Kamal Nath, who has become some kind of flag-bearer for Indian confidence at this year?s Davos, however, differed with the view that the US crisis will deeply affect the other economies. ?If the argument is that the US is going to drive all of the economies downhill, I wouldn?t fully agree with that,? Nath said at a session on economics Tuesday.
But Indian investment bankers and corporate bosses aren?t so sure of this optimistic chest-thumping. A frontline investment banker put forward some simple math. The size of the Indian and Chinese economies, together, simply cannot match that of the US at this point.
The head of a major foreign bank in India echoed this view. ?It?s not going to be easy. FDI may slow down, exports will slow down to the US as the US economy grapples with the crisis. Let?s wait and see how things play out. It?s surely going to impact India,? the bank chief said. Clearly, the topic of discussion at the Indian dinner receptions is India?s role in mitigating the ill-effects of the crisis to some extent.
So, behind all the plumping for India, there is an element of realism working in the minds of the Indian policymakers who are networking at Davos. With the monetary policy and the Budget round the corner, how realistic they are about the crisis will be evident in just a few.