Financial Daily from THE HINDU group of publications
Wednesday, Dec 22, 2004
Industry & Economy
Money & Banking - Forex
`Spending forex reserves not a good idea'
Lord Meghnad Desai (right), Professor of Economics, London School of Economics, and Mr M. Damodaran, Chairman & Managing Director, UTI Mutual Fund, at the G.L. Mehta Memorial Lecture in Chennai. Shaju John
Chennai , Dec. 21
IT is not a good idea to spend out of a country's foreign exchange reserves, feels Lord Meghnad Desai, economist and Director, Centre for the Study of Global Governance, London School of Economics.
Lord Desai said this in response to a question after delivering the G.L. Mehta Memorial Lecture organised by the Institute for Financial Management and Research (IFMR). He said that using up forex reserves would lead to the central bank having to neutralise the inflationary effects of such a move, which would in turn impact on the monetary aspects of the economy.
He was also sceptical of the employment guarantee scheme brought in by the Government. He said that the Government's role should be to facilitate employment generation, not guarantee it. This, it should do by developing infrastructure. "People should find it profitable to employ people," he said.
Speaking on the topic `Europe, the US and Asia in the World Economy,' Lord Desai said that for the first time in 20 years, the developed countries felt threatened by the developing countries. He said that the emerging global economic scene had a lot of positives for the developing countries, particularly those of Asia. By 2050, he said, the share of the combined GDP of China and India in the global output would be in line with their share of world population.
Lord Desai observed that the US had done a good job of allowing skilled people to come into its country and contribute to its economic growth. Continental Europe, however, was closed. But while a lot of talent has gone from Asia to the US, within Asia there has been very little opening up. Lord Desai noted that there was no reason why Malaysia should not have people from China, the Philippines and India working for its economy.
In the emerging scenario, the competition will be between the US and Asia, while Europe seemed to "rest on its laurels," Lord Desai said. Europeans had taken a preference to easy life, with less working hours. The global scene is shifting from the Atlantic to the Pacific, he said.
Lord Desai said that India had lost 13 crucial years to China by opening up its economy late. This was the time when the global economy was opening up, in which was born the `Asian tigers.' But India missed the opportunity.
He said that the first 30-odd years of the post-Independence Indian economy was actually pro-poverty growth, although the rhetoric was "pro poor."
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