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Stimulus won’t do anymore, we need to hit the G-spot

columns Updated: Sep 26, 2011 14:33 IST
Gautam Chikermane

After spending trillions of dollars of taxpayers and pulling financial vulnerabilities into budgets of governments across the world through various economic stimuli over the past three years, we’re back to September 2008 when the global economy teetered over the edge, following the collapse of Lehman Brothers. The last weekend saw meetings at the headquarters of International Monetary Fund (IMF) in Washington DC, where we heard more of the same.

“Today we agreed to act decisively to tackle the dangers confronting the global economy,” a September 24 communique said. “These include sovereign debt risks, financial system fragility, weakening economic growth and high unemployment.” These four risks largely apply to the developed West, though high unemployment is rampant in emerging economies, including India. So, while the euro zone countries will do what it takes to prevent Greece, Italy and Spain from imploding, emerging economies will contain overheating.

“The next few months are crucial for the global economy,” finance minister Pranab Mukherjee told finance ministers of G24. “The recent commodity and food price rise and their volatility constitute a grave threat to economic growth and food security in our economies.” Food prices are close to their all-time high, according to the Food and Agriculture Organisation. “There are now clear signs of a slowdown in global growth,” finance ministers and central bank governors of G7 had said in their September 9 communique at Marseille.

“It does seem odd that prices should be rising at a time when there is such uncertainty regarding the global recovery and growth,” Mukherjee told the G20 on Saturday. “The issue of excessive financialisation of commodity markets that can hurt the real economy through high and volatile input prices and increasing food insecurity needs to be addressed strongly by the G20.”

While India has to take note of global risks --- that’s a small price we pay for being globally integrated --- I think we are getting overwhelmed by problems of the world, while ignoring opportunities at home. When I look at the economic world map, India’s projected 2012 growth rate, at 7.5%, is next only to China’s. India will add $120 billion to growth compared to $270 billion from the US (at 1.8%) or China’s $500 billion (at 9%). The world GDP will rise by 4% or $2.5 trillion to which India’s contribution will be 5%.

India’s relatively smaller base among the big 10 allows for quick strides. A global slowdown or high commodity prices are beyond our control, but the ongoing crisis has pushed India into playing a key role in the global economy. As a result, we are an important participant at G20, G24, G77 and BRIC. So, we can talk till the cows come home about a stimulus to get the world economy going, about an Indian at the helm of IMF or World Bank and reforms in these multilateral institutions. But in that process, let us not get distracted and lose focus of our G-spot— Growth that’s suffering from rising interest rates and policy inertia.