World Economic Forum 2008
Global Crisis: Hope at the end of tunnel
Thomex.com
The response to Finance Minister P Chidambaram's call for cutting down prices in housing, automobiles, hotels tariff, airlines fares have not received much of a warm response from industrialists and businessmen alike. The reasons, cited by them are restricted growth coupled with dwindling profit margins. The Finance Minister while speaking at the World Economic Forum organised here in Delhi said that banks are ready to offer attractive consumer loans to boost the economy.
The slowing down of global economy has had its impact on India and has begun manifesting itself, depending on the degree of its bonding with the global economy. The Forum, which was organised from November 16-18, deliberated on various issues and challenges faced by India and the world. Here is the summary of the discussion:
Catalysing a turnaround for the Global Economy
Klaus Schwab, Founder and Executive Chairman, World Economic Forum, said that the world is undergoing "the first transformational crisis of the globalised age". He said he welcomes global cooperation to deal with the crisis, but called on international governance structures to better reflect the global diffusion of power. He concluded by predicting that "the future will be the age of entrepreneurialism" - and one of the places this spirit is most often found is in the Indian business community.
Rahul Bajaj, Chairman, Bajaj Auto; Member of Parliament, India, said the IMF's latest global growth estimate of 2.2% reflects a lack of consumer confidence across the world. The challenge now is to rebuild this confidence. But the worst is yet to come - especially in the real economy (e.g. manufacturing), which may take 12-18 months to stabilize. The one redeeming feature of the crisis is the tumbling price of oil.
Bajaj strongly cautioned against protectionism and called on the developed world to do more to ensure the success of the Doha Round. He said that, while regulation is needed globally, it should not hurt innovation or the free market. He proposed national regulation with common rules and praised the European model. Bajaj called on the Indian government to follow a pro-growth policy: reduce the Repo rate, cut interest rates, make credit available to consumers and reduce indirect taxes, such as excise.
Rajat M. Nag, Managing Director-General, Asian Development Bank, Manila, reeled off some key statistics: the developed world will see negative growth of 0.3-0.5% in 2009. But "developing Asia" (without Japan) will show 7.5% growth in 2008, slowing to just under 6% next year. China will slow to around 8.4% in 2009, while the most pessimistic estimate for India is 7% next year. So Asia's economies remain "healthy" and its financial sector remains resilient: "We in ADB don't expect a full-blown financial crisis in Asia."
Nag called on banks to "unfreeze the money" as the fundamentals in Asia are much better than elsewhere. He counselled Asian policy-makers to look beyond the immediate crisis and focus on long-term investment in infrastructure, health and education. He reminded participants of the one billion vulnerable people in the region living on a dollar a day, who might yet slip below subsistence levels - "don't forget the other face of Asia".
KV Kamath, Managing Director and Chief Executive Officer, ICICI Bank; President, Confederation of Indian Industry (CII), India, argued that the loss of confidence is understandable, but not warranted. The Indian financial sector is much cleaner than elsewhere - it is well capitalized and tightly regulated: 34% of bank deposits are parked with the government - more than any other country.
"The fundamentals that led to the global crisis do not exist in India," he declared. No sector of Indian business has asked for a bail-out and there is no exposure to sub-prime assets. But India is not entirely insulated: "We are connected to the outside world in day-to-day commerce" while the rupee is traded in Singapore and Dubai. Two things need to be done: get interest rates down by 200-300 basis points and get inflation down to 5-6%.
B. Ramalinga Raju, Founder and Chairman, Satyam Computer Services, India, compared today's "credit bubble-burst" to 2000's "technology bubble-burst". In 2000, the impacts were felt mainly by the IT sector, whereas now, all businesses are affected. Since 2000, IT companies have grown revenues 15 times and, Raju argued, this could happen again. He said: "Competitiveness will be the key driver; protectionism will be dangerous if it comes in the way of entrepreneurship." For Raju, competitiveness is especially about creating value from the consumers' perspective. He championed the growing global knowledge base and said India would find the answers to its problems by taking full advantage of its enormous human resources.
The Forum covered the following subjects:
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