Business Daily from THE HINDU group of publications
Monday, Mar 23, 2009
ePaper | Mobile/PDA Version | Audio | Blogs

News
Features
Stocks
Cross Currency
Shipping
Archives
Google

Group Sites

Industry & Economy - Economy
‘India’s response to slowdown seems misdirected, may stoke inflation’

P.V. Sivakumar

Prof T.N. Srinivasan, Professor of Economics, Yale University, speaking at the Indian School of Business in Hyderabad. —

R. Balaji

Hyderabad, March 22 India’s policy response to the economic slowdown “seems misdirected and could end up stoking inflation,” according to Prof T.N. Srinivasan, Professor of Economics, Yale University and Visiting Fellow, Stanford Centre for International Development.

At the Indian School of Business on Saturday, he said the bulk of the stimulus package is oriented towards boosting domestic demand. But India’s problem is not of GDP decline but GDP growth decline, which started before the financial crisis hit. The deceleration could be attributed to institutional constraints and structural problems such as poorly functioning infrastructure and labour market regulations, apart from a slowdown in exports.

Economic downers

It is these domestic constraints that have made the 8-9 per cent annual growth in the last three years unsustainable. It is not evident that even taking into account the falling rate of growth of exports, growth in aggregate demand has slowed significantly. So, “mechanically imitating the Americans or others makes no sense.” At least it is a relief that the stimulus package was modest in size, he said.

This was among the reasons for not being optimistic about India being among the early economies to break out of the crisis, Prof Srinivasan said.

Listing a few more, he said, the outcome of Parliamentary elections later this year are not easy to predict. The worst-case scenario is the possibility of a coalition of diverse regional parties without a coherent economic view, which could have an adverse impact on economic stability.

Despite having benefited from opening up the heavily-controlled economy, the commitment of politicians to a liberal, open and market economy is not deep. This was reflected in the bias towards its strategy in heavy industries with emphasis on import substitution, public ownership and labour policies.

Though a large share of the total assets of the banking system was still in the public sector, the Government has a strong influence on directing them to the so-called priority sectors which, he felt, were a major constraint on developing an efficient, safer and growing financial intermediation.

However, the long-term prospects continue to be bright for India once the crisis fades away and domestic reforms and investments happen, Prof Srinivasan said, addressing the third annual joint emerging market finance conference organised by the Centre for Analytical Finance, Indian School of Business, Wharton Financial Institutions Centre and the Swedish Institute for Financial Research.

Avoid knew-jerk reaction

He cautioned against overreacting to the crisis. Detractors of market economy were talking about the end of the market system. Prof Srinivasan hoped that knee-jerk reactions to the crisis do not leave a “residue of hastily implemented and ill-thought out reforms.”

More Stories on : Economy | People

Article E-Mail :: Comment :: Syndication :: Printer Friendly Page




Stories in this Section
ISB Dean sees new trends in recruitment


Builders wooing NRI buyers
When prices retreat
‘India’s response to slowdown seems misdirected, may stoke inflation’
Reliance set to ink pact with fertiliser cos for KG block gas
‘Surgery can cure backbone disorders’
‘Youth falling prey to cardio vascular disease’
Drug makers get ready to work on vaccine for cervical cancer
Revolutions in wheels and tyres
Coal India eyeing one more block in Mozambique
Vimta Labs in pact for Ph.D. programme
Latha Rajan, Director, Ma Foi Management Consultants Ltd; Stella Maris College, Chennai
Safety management college
IcfaiTech's B.Tech programme
Abacus training centres
Tech professionals turn to teaching
A turning point for the car industry
Fiat watching it with interest
A new story in every component
Cutting on costs, not technology
Softening raw material prices smooth the ride
Re-tuning the engine components
‘Stimulus package may boost MSMEs’
Granite industry seeks fiscal relief to survive recession
For the girl child
Dunlop workers opt for conciliation
Houseboat operators in dire straits
Cruising in


Smartbuy



The Hindu Group: Home | About Us | Copyright | Archives | Contacts | Subscription
Group Sites: The Hindu | The Hindu ePaper | Business Line | Business Line ePaper | Sportstar | Frontline | The Hindu eBooks | The Hindu Images | Home |

Copyright 2009, The Hindu Business Line. Republication or redissemination of the contents of this screen are expressly prohibited without the written consent of The Hindu Business Line