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Eastern promise lifts the gloom as Davos meet ends

business Updated: Jan 27, 2008 12:11 IST
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Thousands of business and political leaders, gathered in the midst of a global economic downturn, wound up their exchanges in this snow-covered Swiss town on Sunday in a grim mood, lifted only slightly by the promise of an Eastern growth.

"The mood of the forum was clouded by the financial crisis. Uncertainty continues," said KV Kamath, managing director and CEO of ICICI Bank, and co-chair of the annual World Economic Forum (WEF) that takes place in this ski resort every year.

Its aim is to allow business leaders, politicians, academics and others to network informally and exchange ideas about the world economy, thus helping set the agenda for the year's business.

This year's WEF followed the US financial turmoil and several days of market uncertainty resulting from a housing mortgage market crisis. Nevertheless, some 2,500 participants turned up.

Among them was Kamath and 80 other Indian business leaders who seemed determined to stamp a rare optimism on a forum that spent much of its five days debating how serious the current financial crisis was and the ways to deal with it.

The Indian delegation was led by Finance Minister Palaniappam Chidambaram, who told participants that India could help "moderate" the global impact of the current financial downturn if it was able to deal with a sudden capital surge accompanied by declining exports.

In tandem, Commerce and Industry Minister Kamal Nath - meeting with 15 other trade ministers on the sidelines of the event - said it was important for global political leaders to strike a world trade deal by the end of the year.

Backed strongly by US Trade Representative Susan Schwab and European Union Trade Commissioner Peter Mandelson, the trade ministers decided on Saturday to meet in Geneva in the third week of March to give a boost to the stalled Doha Round of world trade talks.

That one bit of Davos silver lining was linked directly to the general downbeat mood at the forum itself, with Nath declaring it was important for the global political leadership - a direct hint at the US and EU - to conclude a trade deal in 2008, given what he called "economic crisis facing the developed world".

It is hard to tell, but the optimism exuded by both China and India may just have been responsible for the fact that a little over half the senior executives gathered in Davos felt the current financial troubles were a temporary downturn rather than a recession.

Also linked to Doha, whose shadow loomed large over the WEF, was a surprise casualty: the previously unquestioning enthusiasm about economic globalisation.

Instead, many participants stressed the value of collaboration, where each side collaborates to make sure the other's interests are served.

"Globalisation is probably not the right word. Is it truly a level playing field? If it was, then the WTO should have been a walkover. The fact that as you go through the WTO process you are finding so many issues, clearly indicates that globalisation is probably not the right word," said Kamath.

Kamath co-chaired the forum along with Indian-born CEO of PepsiCo, Indra Nooyi, former British premier Tony Blair, James Dimon, chairman and CEO, JPMorgan Chase, former US secretary of state Henry Kissinger, David J O'Reilly, Chevron CEO, and Wang Jianzhou, CEO of China Mobile Communications Corporation.

The Forum itself was designed this year to stress collaboration across all the themes - from business, economics and finance, geopolitics, science and technology to societal values - but it could not shake off the spectre of a global economic downturn.

The possible impact on India and China, naturally, was a hot topic. The key to answering that question lay in the issue of 'decoupling' - that is, how integrated was a particular economy to that of the US?

Would India sneeze if the US caught a cold? Both Chidambaram and Kamal Nath thought not - but agreed that China was much more vulnerable to the US downturn as its growth was export-oriented.

The Indian growth, on the other hand, was fuelled by investment and domestic consumption.

"Are we decoupled? India certainly is decoupled. Any impact will be a marginal impact," said Kamath, whose ICICI bank is India's largest private sector bank.

"Limiting access to dollar funding and limiting access to global money coming into India and buying assets has insulated India from any challenges on the global front. Economically, we are insulated," he added.

But some financial sector leaders didn't think economic insulation was necessarily a good idea - the freer, more developed and complex a market became, the more it lent itself to cyclical ups and downs.

The current crisis was no more than an "overdue correction" they said.

However, such arguments were given a short shrift by Indians at Davos, who pointed out that if it came to a choice, protecting India's large numbers of poor from the volatilities of the market was more important than maintaining a high growth rate.