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HindustanTimes Sun,20 Apr 2014

Don't wait for a helping hand
Hindustan Times
September 08, 2013
First Published: 23:30 IST(8/9/2013)
Last Updated: 03:50 IST(9/9/2013)

The world economy almost seemed an afterthought at the latest Group of Twenty summit, so much of the chatter at St Petersburg was focussed on the Syrian civil war.

But economics dominated the agenda and what the summit showed is that the international consensus on responding to the global financial crisis and its aftermath continues to come apart.

Reason: the various parts of the world economy are going in different directions. The Western economies are starting to see the green shoots of growth. China's economic engine continues to show resilience.

Among the sorriest G-20 members is India. India, which survived the 2008-09 financial crisis relatively well, is now on a slippery stagflationary slope. Almost alone among the major economies it has combined high inflation with rapidly falling growth, a high current account deficit with a torrent of government red ink.

India had gone to the G-20 hoping to inspire international action that could help stem its most pressing short-term problem: the falling value of the rupee. It asked Western governments planning to tighten their monetary policies to coordinate with the emerging markets as the resulting reversal in capital flows was feeding the fall of currencies like the rupee.

It also sought any other dollar conserving band-aid it could find and received two: a useful increase in its swap arrangement with Japan and a suspect one in the form of a proposed BRICS currency fund.

On paper, India did well in both areas. However, closer inspection shows how little these matter to the future of the Indian economy. First, the central banks of the US and most developed countries are independent, not mandated to concern themselves about any foreign economy and, thus, will ignore whatever the G-20 joint statement may say about keeping an eye on policy fallout overseas.

This is clear by the lack of any implementation clauses in the action plan. Second, the details of the BRICS fund remain to be worked out. More importantly, the BRICS country best in a position to help the others is China and the one most in a position of a supplicant is India.

If New Delhi were to actually turn to this fund it would, in effect, be asking Beijing for help to bailout the Indian economy. The signal to the rest of the world, let alone to China, would be clear. 

A study by the US federal reserve bank researchers in June had looked at whether US monetary policy was roiling the emerging economies. It concluded that there was some impact on the type of capital flow entering the emerging economies but otherwise not much at all.

The real message Prime Minister Manmohan Singh should have got from St Petersburg is that India should get its own act together first.


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