'India will make a big mistake if it halts reforms'


Do you think the Dubai debt crisis can reignite another financial crisis that followed the US financial meltdown?

The Dubai crisis will not have any major impact on the global economy. The size and dimension of the losses arising out of Dubai World’s debt crisis is of a minor nature compared to that one witnessed in the US sub-prime crisis that led to current global slowdown. I don’t think it will escalate beyond Dubai region.

As far as developing nations like India, Pakistan and Bangladesh are concerned, the Dubai crisis may impact the flow of remittances of expatriates. Construction work in real estate sector in Dubai may be affected. This may lead to retrenchment of overseas workers. It may also affect India’s export to the Gulf region in the services sector.

Do you think there is need for evolving a new international financial architecture to prevent recurrence of the financial meltdown?

There is an urgent need for evolving a new set of benchmark for capital and liquidity standard at the international level to prevent recurrence of the phenomenon like the US meltdown, which was triggered by sub-prime crisis. This does not mean that we should have an international regulatory body to prevent it. This is not possible because we do not have a global government. The best option is to evolve safeguard systems in a wide range of financial services on a cooperative basis at the international level. This should be adhered to by all the participating countries on a voluntary basis.

What sort of financial mechanism do you suggest that can minimise the adverse impact of such a phenomenon on the poor countries?

It is an undeniable fact that ultimately the poorest of poor always suffer in the event of any financial crisis that we are now witnessing. If all of us join hands to develop a system which will minimise the possibility of such destabilising financial crisis, we will be safeguarding the interests of poor. It is seen that whenever a financial crisis of large magnitude takes place, financial institutions of the rich countries try to bring back money to their domestic domain for their own security. But in the process withdrawal of funds from developing and poor nations affect the economies of these countries thereby affecting the livelihood of the poor in the long run.

Financial institutions of rich countries will also suffer if they do not deploy their funds in developing economies. By sticking to their funds they will not get higher returns. So ultimately we need each other. Therefore it is in the interest of both rich and poor countries to evolve a workable financial mechanism on a cooperative basis that can prevent recurrence of such large scale financial catastrophe.

Compared to most countries India appears to have withstood the adverse impact of the ongoing global financial crisis. How do you explain India’s ability to insulate its economy from the global downturn?

The basic reason why India could manage to withstand the fallout of the US financial meltdown is that most of the Indian banks and financial institutions do not have any large scale exposure to international financial market. The other reason is India’s financial regulatory system as managed by the RBI has largely helped its economy to be insulated from any upheavals in the global financial market.

However, this should not be an excuse for India not to undertake necessary reforms in wide range of its financial sector like banking, insurance and pensions. India will make a big mistake if it halts reforms in the financial sector. While on one hand there is a need for emerging economies like India to further liberalise their financial sector, on the other developed counties like the US should make a serious introspection about undertaking necessary corrections in their financial system to curb loopholes that have given rise to such financial crisis.

How do you assess Indian economy? Do you visualise India as a global economic power?

India has all the potential to emerge as a responsible and global economic power. It is moving fast in that direction. That is why most countries are aggressively engaging themselves with India in wide range of economic and trade activities. India’s strong democratic system coupled with its pool of talented manpower as well as strong manufacturing base would enable it to be in the frontline of global economic power.

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