?The challenge is to fulfill expectations?
In an interview with Arun Kumar, global financier George Soros speaks about India, the US and his writings.india Updated: Dec 26, 2006 03:20 IST
George Soros, who visited India last week, is both brilliant and controversial. He is admired for his financial acumen, the numerous books he has written, as well as his numerous philanthropic activities. But he has also earned the epithet of being 'the man who broke the Bank of England', following his speculation on the pound sterling in 1992, which earned him more than $1 billion. He has also been accused of hurting the Malaysian ringgit during the Asian financial crisis by aggressive speculation.
Born in Budapest, Hungary on August 12, 1930, Soros fled the Soviet Union occupied Hungary in 1947, and arrived in England. He graduated from the London School of Economics in 1952. Soros emigrated to the United States in 1956. 'The Quantum Fund', the investment fund he set up, became one of the most successful investment funds ever. Lately Soros has been in the news for his trenchant criticism of US President George Bush's policies. In an interview withArun Kumar, Soros discussed India, the United States and his own writings at length.
What do you think of India's current high growth rate? Is it a temporary phenomenon?
No. I think a permanent change has occurred with India removing its elaborate licensing system and generally liberating other commercial activities. There is also the reduction in the birth rate. So the Hindu growth rate, as it was called, used to be four or 4.5 per cent, and now it is around nine per cent, while the Hindu birth rate, which was 3.5 per cent is now at two per cent. So now you have a dynamic situation, which is more likely to reinforce the growth rather than correct it.
However, there is a danger of the financial market overheating. Then you could have financial collapse, which in turn could disrupt growth .
Will the collapse of the financial market, if indeed it happens, disrupt growth as well?
I think that the potential is there. But I do not think it is in any way imminent.
It is said that the US is the engine of the growth of the global economy. India too is largely dependant on the US economy. A lot of work is being outsourced from the US to India, not only in IT but also in manufacturing and other sectors. Will a slowdown in the US adversely impact India?
Protectionism in the United States could do it too.
Do you think outsourcing is going to stop eventually, or will it increase further?
I think it will increase further.
But if there is recession in the US, it will have a cascading effect on countries like India. We are highly dependant on the US market, particularly the IT sector. Is India over dependant on the US economy?
Look India has survived without trade with the US. Trade with the US and with China, which has grown manifold in recent times, has accelerated India’s growth. So it has benefited India. So the world has become greatly inter-dependant and the institutions that maintain stability have not kept pace with the growth of the markets. That is cause for concern. But India has benefited by opening up to international trade.
You said the institutions have not kept pace with the market. Can you elaborate?
Since the capital move around freely, nation states can no longer attract or regulate capital. And that creates uncertainty. It also increases differences between the rich and the poor, which creates political unrest. So it’s an imperfect system.
Which are the sectors in India that have large potential?
I am not the right man to answer that question. The specialists in my firm who deal with India believe that financial sector, real estate sector, infrastructure sector, but I think these are well known. I don’t know the Indian market.
You have been meeting some senior government officials and industrialists. Did you get some idea of what is happening at the ground level?
Yes I did. I can say it is a bull market. There is lot of enthusiasm.
But bull markets is dangerous, because there is always the chance that they might turn otherwise.
Yes, but it is better than a bear market. You have to live with uncertainty. I don’t see any imminent danger of the bull market turning into a bear market.
Do you think the Government of India is pursuing the right kinds of fiscal and monetary policies that will sustain the high growth rate?
It seems to be going in the right direction. But in India too you have increasing gap between the rich and the poor. It is a consequence of faster growth. Those who are directly involved in the process are getting richer and the big challenge is how to fulfill the rising expectations of the general population.
The government has to be far sighted enough to ensure that the general public benefits from the growth. Because India is a democracy, if people do not get their share, it will create problems. India is so diversified, there are now a number of states that are following good policies and there the people are getting benefits. That will increase the pressure on other states to pursue similar policies. From what I hear there is a big difference between southern and northern states.
In your book The Age of Fallibility: Consequences of the War on Terror, you have mentioned that the real estate market in the US is bound to go bust?
Well it has already busted, or is being deflated in the US. We will have to see if it causes any dislocation in the world economy or not. Because it affects consumer spending in the United States, which has been the motor of the world economy.
There will have to be some adjustment. It remains to be seen whether the adjustment will lead to a soft lending or a hard lending. Right now it looks quite good because the rest of the world is actually accelerating.
That could offset a temporary slowdown in the US and then you would have well balanced growth across the world. Alternatively if the slowdown spreads from the US to the rest of the world, it would reinforce political pressures, which are already building up. At the moment the outcome cannot be predicted. But that is the major danger facing the world economy.
Do you think emerging markets are going to be the engine of growth for the global economy in times to come?
They already are. India is accelerating and China is going ahead full speed. And the demand for natural resources is reinforcing, Brazil, Argentina and all of Africa. This is a very important development, which actually could offset a slowdown in the US. I am actually not so worried about the economy and the financial market.
I am much more worried about the political situation. The fallout from that could dislocate the financial market.
Can you explain?
You have impending civil war in Iraq, maybe in Palestine, maybe in Lebanon, maybe in Afghanistan. The Middle East, which is after all the main source of oil, could be seriously affected. And that could be a shock for the world economy. The political danger is much bigger than the economic imbalances.