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Aufsteiger-Check: Interview mit Indien-Experte Arvind Panagariya

9. Februar 2010

Im Aufsteiger-Check werden in der kommenden Zeit renommierte Ökonomen aus Brasilien, China, Indien und Russland zu den Aussichten in ihren Ländern und zur neuen Rolle der BRIC-Staaten in der Weltwirtschaft befragt. Heute: Arvind Panagariya, Professor für politische Ökonomie Indiens an der Columbia University in New York. Der einstige Chefökonom der Asian Development Bank zählt zu den renommiertesten Indien-Experten weltweit.

1. How strong will be the recovery of the Indian economy in 2010?

In 2010, I expect India to return to its current trend growth rate of 8 to 9 percent.  During July-September 2009, the latest quarter for which data are available, India has already surged to 7.9 percent.  All indications are that the following quarter will be no different.

2. Which factors will be driving the recovery?

Crisis never hit India as hard as other parts of the world.  Its growth rate fell approximately 2 percentage points to an average of 5.9 percent during three quarters spanning October 2008 to June 2009 but has now recovered to 7.9 percent.  The main causes of the decline were temporary freeze in liquidity markets and a decline in exports driven by disruption in export credit.  These problems have now all but disappeared.  India also had fiscal deficit of 7 to 8 percent of the GDP when the crisis hit and was raised to 10 percent as a part of the stimulus package, which still remains in place. 

3. What are the biggest risks to the development?

Risks are mainly from possible reversal of reforms.  Two examples: (i) Recently, a decision was made to require all ultra-mega power plants to buy their equipment domestically.  This will not only delay power project but also compromise the quality of equipment.  (ii) A legislation is being brought to extend the minimum wage law to 340 million workers in the informal sector.  Such a measure would lead to more capital-intensive technologies even in tiny enterprises in the informal sector.  India already suffers from very high capital intensity in its formal sector due to draconian labor laws.  These measures are a throw back to the pre-reform era.  

4. How should the government respond to the risks?

Any unforeseen risks will be greatly mitigated if the government would introduce reforms in land and labor markets that facilitate the expansion of the labor-intensive industries such as apparel and footwear and encourage the deployment of more labor-intensive techniques in all sectors in the formal sector.

5. Has the role of India in the world economy substantially changed due to the crisis?

One by-product of the crisis has been the supplanting of the G-8 by G-20.  This has dramatically altered how India views its role in the world economy.  Its stance in climate change negotiations turned significantly more conciliatory after the Pittsburgh G-20.  Because India was one of the two large economies (the other one being China) that continued to grow at a healthy pace despite the crisis, it has also acquired some importance as a growth pole of the global economy.  With 8 percent or higher growth likely in the coming years, this role is going to only expand.

6. What will be the biggest challenges to the Indian economy in the years ahead?

Dealing with mitigation obligations. If India has to accept obligations for mitigation in absolute terms (as opposed to relative terms through such measures as reduction in emission intensity of the GDP), India’s growth and poverty alleviation aspirations will be greatly undermined.  40 percent of Indian households still lack ANY access to electricity.  At the current level of mitigation technologies and green sources of energy, the provision of electricity for all and significant growth in industry will remain distant goals if India has to accept mitigation obligations before 2040.  The other major challenge relates to further economic reforms that the current government has continues to resist. 

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