<p>The noted former economist from International Monetary Fund (IMF) had famously predicted the collapse of toxic debt-laden world financial system way back in 2005, an event which triggered the recent global recession. <br /><br />Prof Rajan’s comments should cheer up Indian IT industry which is expanding rapidly, but remains wary of continued global economic uncertainties. Infosys CEO Kris Gopalakrishnan, who chaired the session on Changing World Order, said the fortunes of Indian industry, which had created 3 million plus direct and indirect jobs, depended on global economic conditions.<br /><br />The US households were coming out of a recession-triggered spending freeze and their savings rate had stabilised at 5 per cent, Prof Rajan said. The job losses had tapered off and the industry confidence had returned in manufacturing and service sectors in USA and northern Europe. However, Italy, Spain, Greece and peripheral Europe were yet to recover, he said. But global recovery in industrial countries was mitigated by three risks: Their unemployment continued to be high and was not cyclical but structural in nature. <br /><br />This means that job losses emanate from basic changes in industry conditions such as outsourcing and would be difficult to recover. These jobs are unlikely to return and the laid off workers would have to learn new skills. The high government debt and housing crisis, which was yet to bottom out, were the other two risks, he said. Due to these risks, industrial economies would continue to see higher taxes, lower spending and innovation, government layoffs, and would not be able to lead the global economy any more. While the emerging economies had emerged as the new drivers of global economy, many of them such as China were seeking to maintain their exports through exchange rate controls, risking overheating of their economies.<br /><br />Both western and Indian companies need a new mindset to do business in emerging economies, to produce products and services for markets with low income consumers. GE had already reduced functionalities and the cost of its $ 100,000 imaging machines in emerging markets, he said. Godrej is working on low cost, battery powered refrigerators for Indian villages. These devices would not make ice but only preserve food at 6 to 8 degrees, hence meeting a prime need at village homes, he said. But the transition of leadership role to emerging economies would not be smooth as industrial countries may become more protectionist and pass stiffer anti immigration laws. But that would not stop the capital following out of the USA due to a low interest regime there. Emerging economies were in a beauty contest to attract this capital and India should take care not to become the ugly princess, Prof Rajan said. It should cut fiscal deficit, subsidies, invest in infrastructure and move people away from agriculture. </p>
<p>The noted former economist from International Monetary Fund (IMF) had famously predicted the collapse of toxic debt-laden world financial system way back in 2005, an event which triggered the recent global recession. <br /><br />Prof Rajan’s comments should cheer up Indian IT industry which is expanding rapidly, but remains wary of continued global economic uncertainties. Infosys CEO Kris Gopalakrishnan, who chaired the session on Changing World Order, said the fortunes of Indian industry, which had created 3 million plus direct and indirect jobs, depended on global economic conditions.<br /><br />The US households were coming out of a recession-triggered spending freeze and their savings rate had stabilised at 5 per cent, Prof Rajan said. The job losses had tapered off and the industry confidence had returned in manufacturing and service sectors in USA and northern Europe. However, Italy, Spain, Greece and peripheral Europe were yet to recover, he said. But global recovery in industrial countries was mitigated by three risks: Their unemployment continued to be high and was not cyclical but structural in nature. <br /><br />This means that job losses emanate from basic changes in industry conditions such as outsourcing and would be difficult to recover. These jobs are unlikely to return and the laid off workers would have to learn new skills. The high government debt and housing crisis, which was yet to bottom out, were the other two risks, he said. Due to these risks, industrial economies would continue to see higher taxes, lower spending and innovation, government layoffs, and would not be able to lead the global economy any more. While the emerging economies had emerged as the new drivers of global economy, many of them such as China were seeking to maintain their exports through exchange rate controls, risking overheating of their economies.<br /><br />Both western and Indian companies need a new mindset to do business in emerging economies, to produce products and services for markets with low income consumers. GE had already reduced functionalities and the cost of its $ 100,000 imaging machines in emerging markets, he said. Godrej is working on low cost, battery powered refrigerators for Indian villages. These devices would not make ice but only preserve food at 6 to 8 degrees, hence meeting a prime need at village homes, he said. But the transition of leadership role to emerging economies would not be smooth as industrial countries may become more protectionist and pass stiffer anti immigration laws. But that would not stop the capital following out of the USA due to a low interest regime there. Emerging economies were in a beauty contest to attract this capital and India should take care not to become the ugly princess, Prof Rajan said. It should cut fiscal deficit, subsidies, invest in infrastructure and move people away from agriculture. </p>
