“The Chinese slowdown is a concern for the whole world. There is a lower demand for some of our exports to China. But indirectly too, many of the countries are not exporting to China as much as they did and they are buying less from us,” Rajan said in an interview with Hong Kong-based South China Morning Post.
“But India being a commodity importer, has been helped a bit by cheaper commodities. So the impact has not been as bad as it could have been. Still, on the whole, we have been adversely affected by the Chinese slowdown because China’s slowdown has impacted global growth and India is very well integrated into the global economy”, Rajan said.Â
Finance Minister Arun Jaitley had told a gathering at Columbia University last month that India is “not impacted” by the slowdown as it is not part of Chinese supply chain and India could become the “additional shoulder” the global economy needs to stand on as China slows.
Some comments from India that China’s pain is India’s gain has drawn strong reactions from the Chinese media.
Rajan was in Hong Kong yesterday to receive honorary doctorate awarded by the Hong University of Science and Technology.
In his interview Rajan also pointed to “growing interdependence” between India and China.
“The prime minister has clearly laid out a path for improving relations with neighbours. The focus is on the East, rather than the traditional emphasis on the West. Whether it is through the Asian Infrastructure Investment Bank or through China’s Silk Road initiative, we will have greater engagement with China and Chinese projects. This will also feed well into China’s interests in expanding its engagement in the region,” he said.
Rajan said he hopes India will emulate China’s growth rates and the country would like to learn from things China got right.
“We would like to learn from its manufacturing success, how it built up its infrastructure, how it encouraged its village enterprises and how it manages FDIs in such enormous quantities. A lot of Indian businesspeople who travel to China also keep coming back with stories of why it works better than India”, he said.
“But I also stress we cannot blindly follow the path that China followed as it has already been on that path and has changed some of the conditions. We have to determine which path we follow so that there is room for both of us. Would it, for example, make sense for India to specialise in industries that China has already specialised in? In some cases there is room for both, in some maybe not”, he said.
Rajan also rooted for a greater global role for the Chinese currency yuan and rubbished claims that Beijing started a currency war with its recent devaluation.
“I do not know what the ultimate requirements of the International Monetary Fund (IMF) are and how much of these China has met. But the IMF does need to accommodate currencies of large economies with strong positions in global trade and finance, and clearly China has made a lot of progress on both counts”, he said.Â
Rajan also said it is “very unfair” to blame Beijing for the competitive devaluation among emerging markets, contrasting the shrill anti-Chinese voices common in a country seen as China’s regional rival.
“Multilateral bodies like the IMF and the World Bank are increasingly paying more attention to emerging markets. This has to continue and there needs to be changes in governance in multilateral institutions”, he said.
His comments came amid reports that yuan may enter the IMF’s Special Drawing Rights (SDR) basket of reserve currencies at a lower weighting. The IMF is expected to decide this month on whether to add the yuan to the elite currency club that now includes the US dollar, euro, pound sterling and the yen.
Inclusion in the SDR would boost Beijing’s efforts to internationalise its currency and cement its status as a global power.
Beijing drew flak for ‘starting’ a currency war after it resorted to nearly four per cent devaluation of yuan in August which led to a sharp sell-off in emerging-market currencies, including the rupee.
Raghuram Rajan said: “Currencies elsewhere were already depreciating in a large way even before the Chinese move because of the unconventional monetary policies adopted by some countries.
“It is not reasonable to say the Chinese move precipitated the trend. Second, given the small scale of the Chinese devaluation, it cannot be blamed for a currency war”, Rajan said.