'India is likely to recover in 4-6 quarters'

INDIA ECONOMIC SUMMIT 2008

India should since growth is more important than inflation management, Rajat M Nag, Managing Director-General, ADB, tells Prashant K Sahu.

What will be the impact of the financial turmoil?
All countries have been affected, both developed and developing. Next year is going to be a very difficult year. China and India will also be hit. But relatively speaking, China and India will still grow. The growth will of course be considerably less. We have already started to see the effects of the financial crisis in the real sector.

One is beginning to see a large number people being laid off in India and China, particularly in the SME sector. In India the textile sector has been badly hit, as has the outsourcing sector. Things will get worse before they get better. This year India’s growth will be around 7.4-7.8 per cent, but next year it may go down to 6-6.5 per cent. Developing economies need to grow at 7 per cent plus to keep up the fight against poverty and reduce unemployment.

However, Asia will avoid a full-blown financial crisis. Banks are reasonably well capitalised in India and other Asian countries. Non-performing assets are less than 5 per cent in Asia excluding Japan.

What is the assessment about India?
In India, inflation has come down considerably. Oil prices have come down by more than half. Similarly, prices of food and other commodities have declined. The pressure on the price front is certainly less. On balance, our view is that Indian authorities should focus on growth. Inflation was a major challenge in the summer. But the challenge from that front is lower now. The poor need to be protected from high food prices.

India can think of easing some administrative controls on prices. Our view is that growth is more important than inflation. A fiscal and monetary stimulus is the right thing. On the fiscal side, India has less space because of its high fiscal deficit. India needs to focus on implementing programmes that are already in place and expenditures which have already been allowed for. Inflation in India is likely to come down to 7.9 per cent this calendar year to 6.7 per cent next year.

How much time India will take to recover from the crisis?
Our assessment is that India could take four to six quarters to recover. For the US, it could probably take longer. In India, a great concern we have is the impact on poverty. The poor are hit hard by the financial crisis. Countries have to focus on short-term issues, but keep their eyes on the medium- to long-term, to reduce the adverse impact on the poor.

Is the drawing up a plan to help Asian economies, including India?
Yes. We are in discussion with some countries. The requirements of each country are different. There may be immediate assistance for some countries. We are looking at providing more financial support to small and medium enterprises (SMEs). Credit to SMEs has been squeezed. So we are talking to various government agencies about how to provide finance for SMEs and for micro-finance in India as well.

There are several options. Infrastructure financing requires about $300 billion in Asia every year. We had expected a large part of that amount to come from the private sector. That is no longer the case. Governments also have limited space for funding infrastructure development. We believe those projects like the transport corridor, freight corridor, hospitals and schools, must continue.

ADB will step up lending to make up for the gap to the extent possible keeping in mind resource limitations. ADB will also provide assistance to countries impacted by the financial crisis. Thirdly, we are taking a long-term view of institutional enhancements like prudential regulations, social standards, capital adequacy ratios and the legal framework.

We are ready to assist India and we are in broad talks with India. The lending programme for India is already quite high at nearly to $2 billion annually and will probably go up, depending on requirements.

Has India’s response to the financial crisis been adequate?
Given India's constraints on the fiscal side, the response has been very appropriate. Government and RBI have taken the right approach towards monetary policy relaxation.

On the other hand, I think the measures taken by the US and Europe are beginning to take hold. The effect on the real sector has now begun. It will depend on when demand will start picking up. For example, in textile and outsourcing services (which is critical for India). China has an important role to play. There is huge scope for increasing its domestic demand. If China’s economy picks up and becomes a source of imports, it will have a positive impact on the world economy.

image
Business Standard
177 22
Business Standard

'India is likely to recover in 4-6 quarters'

INDIA ECONOMIC SUMMIT 2008

Prashant K Sahu  |  Mumbai 

Rajat M Nag

India should since growth is more important than inflation management, Rajat M Nag, Managing Director-General, ADB, tells Prashant K Sahu.

What will be the impact of the financial turmoil?
All countries have been affected, both developed and developing. Next year is going to be a very difficult year. China and India will also be hit. But relatively speaking, China and India will still grow. The growth will of course be considerably less. We have already started to see the effects of the financial crisis in the real sector.

One is beginning to see a large number people being laid off in India and China, particularly in the SME sector. In India the textile sector has been badly hit, as has the outsourcing sector. Things will get worse before they get better. This year India’s growth will be around 7.4-7.8 per cent, but next year it may go down to 6-6.5 per cent. Developing economies need to grow at 7 per cent plus to keep up the fight against poverty and reduce unemployment.

However, Asia will avoid a full-blown financial crisis. Banks are reasonably well capitalised in India and other Asian countries. Non-performing assets are less than 5 per cent in Asia excluding Japan.

What is the assessment about India?
In India, inflation has come down considerably. Oil prices have come down by more than half. Similarly, prices of food and other commodities have declined. The pressure on the price front is certainly less. On balance, our view is that Indian authorities should focus on growth. Inflation was a major challenge in the summer. But the challenge from that front is lower now. The poor need to be protected from high food prices.

India can think of easing some administrative controls on prices. Our view is that growth is more important than inflation. A fiscal and monetary stimulus is the right thing. On the fiscal side, India has less space because of its high fiscal deficit. India needs to focus on implementing programmes that are already in place and expenditures which have already been allowed for. Inflation in India is likely to come down to 7.9 per cent this calendar year to 6.7 per cent next year.

How much time India will take to recover from the crisis?
Our assessment is that India could take four to six quarters to recover. For the US, it could probably take longer. In India, a great concern we have is the impact on poverty. The poor are hit hard by the financial crisis. Countries have to focus on short-term issues, but keep their eyes on the medium- to long-term, to reduce the adverse impact on the poor.

Is the drawing up a plan to help Asian economies, including India?
Yes. We are in discussion with some countries. The requirements of each country are different. There may be immediate assistance for some countries. We are looking at providing more financial support to small and medium enterprises (SMEs). Credit to SMEs has been squeezed. So we are talking to various government agencies about how to provide finance for SMEs and for micro-finance in India as well.

There are several options. Infrastructure financing requires about $300 billion in Asia every year. We had expected a large part of that amount to come from the private sector. That is no longer the case. Governments also have limited space for funding infrastructure development. We believe those projects like the transport corridor, freight corridor, hospitals and schools, must continue.

ADB will step up lending to make up for the gap to the extent possible keeping in mind resource limitations. ADB will also provide assistance to countries impacted by the financial crisis. Thirdly, we are taking a long-term view of institutional enhancements like prudential regulations, social standards, capital adequacy ratios and the legal framework.

We are ready to assist India and we are in broad talks with India. The lending programme for India is already quite high at nearly to $2 billion annually and will probably go up, depending on requirements.

Has India’s response to the financial crisis been adequate?
Given India's constraints on the fiscal side, the response has been very appropriate. Government and RBI have taken the right approach towards monetary policy relaxation.

On the other hand, I think the measures taken by the US and Europe are beginning to take hold. The effect on the real sector has now begun. It will depend on when demand will start picking up. For example, in textile and outsourcing services (which is critical for India). China has an important role to play. There is huge scope for increasing its domestic demand. If China’s economy picks up and becomes a source of imports, it will have a positive impact on the world economy.

RECOMMENDED FOR YOU

'India is likely to recover in 4-6 quarters'

INDIA ECONOMIC SUMMIT 2008

India should focus on long-term measures since growth is more important than inflation management, Rajat M Nag, Managing Director-General, ADB, tells Prashant K Sahu.

India should since growth is more important than inflation management, Rajat M Nag, Managing Director-General, ADB, tells Prashant K Sahu.

What will be the impact of the financial turmoil?
All countries have been affected, both developed and developing. Next year is going to be a very difficult year. China and India will also be hit. But relatively speaking, China and India will still grow. The growth will of course be considerably less. We have already started to see the effects of the financial crisis in the real sector.

One is beginning to see a large number people being laid off in India and China, particularly in the SME sector. In India the textile sector has been badly hit, as has the outsourcing sector. Things will get worse before they get better. This year India’s growth will be around 7.4-7.8 per cent, but next year it may go down to 6-6.5 per cent. Developing economies need to grow at 7 per cent plus to keep up the fight against poverty and reduce unemployment.

However, Asia will avoid a full-blown financial crisis. Banks are reasonably well capitalised in India and other Asian countries. Non-performing assets are less than 5 per cent in Asia excluding Japan.

What is the assessment about India?
In India, inflation has come down considerably. Oil prices have come down by more than half. Similarly, prices of food and other commodities have declined. The pressure on the price front is certainly less. On balance, our view is that Indian authorities should focus on growth. Inflation was a major challenge in the summer. But the challenge from that front is lower now. The poor need to be protected from high food prices.

India can think of easing some administrative controls on prices. Our view is that growth is more important than inflation. A fiscal and monetary stimulus is the right thing. On the fiscal side, India has less space because of its high fiscal deficit. India needs to focus on implementing programmes that are already in place and expenditures which have already been allowed for. Inflation in India is likely to come down to 7.9 per cent this calendar year to 6.7 per cent next year.

How much time India will take to recover from the crisis?
Our assessment is that India could take four to six quarters to recover. For the US, it could probably take longer. In India, a great concern we have is the impact on poverty. The poor are hit hard by the financial crisis. Countries have to focus on short-term issues, but keep their eyes on the medium- to long-term, to reduce the adverse impact on the poor.

Is the drawing up a plan to help Asian economies, including India?
Yes. We are in discussion with some countries. The requirements of each country are different. There may be immediate assistance for some countries. We are looking at providing more financial support to small and medium enterprises (SMEs). Credit to SMEs has been squeezed. So we are talking to various government agencies about how to provide finance for SMEs and for micro-finance in India as well.

There are several options. Infrastructure financing requires about $300 billion in Asia every year. We had expected a large part of that amount to come from the private sector. That is no longer the case. Governments also have limited space for funding infrastructure development. We believe those projects like the transport corridor, freight corridor, hospitals and schools, must continue.

ADB will step up lending to make up for the gap to the extent possible keeping in mind resource limitations. ADB will also provide assistance to countries impacted by the financial crisis. Thirdly, we are taking a long-term view of institutional enhancements like prudential regulations, social standards, capital adequacy ratios and the legal framework.

We are ready to assist India and we are in broad talks with India. The lending programme for India is already quite high at nearly to $2 billion annually and will probably go up, depending on requirements.

Has India’s response to the financial crisis been adequate?
Given India's constraints on the fiscal side, the response has been very appropriate. Government and RBI have taken the right approach towards monetary policy relaxation.

On the other hand, I think the measures taken by the US and Europe are beginning to take hold. The effect on the real sector has now begun. It will depend on when demand will start picking up. For example, in textile and outsourcing services (which is critical for India). China has an important role to play. There is huge scope for increasing its domestic demand. If China’s economy picks up and becomes a source of imports, it will have a positive impact on the world economy.

image
Business Standard
177 22
Widgets Magazine

More News

Widgets Magazine

Widgets Magazine

Premium Services

In Partnership with

 

Dear Guest,

 

Welcome to the premium services of Business Standard brought to you courtesy FIS.
Kindly visit the Manage my subscription page to discover the benefits of this programme.

Enjoy Reading!
Team Business Standard