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GLOBAL CRISIS: Impact On Growth Strategies Arvind Virmani (views are personal)

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Presentation on theme: "GLOBAL CRISIS: Impact On Growth Strategies Arvind Virmani (views are personal)"— Presentation transcript:

1 GLOBAL CRISIS: Impact On Growth Strategies Arvind Virmani (views are personal)

2 10 March, 2010AV2 Introduction n Global Crises: Worst since Great Depression n Slower Growth of World GDP, Trade n Export oriented economies will loose n Development strategy/Growth Model u E, S E Asia: FDI-Export or Public Investment-Export led growth model u China’s Growth/Development model

3 11/20/2009EconomicCrisesEcPower 3 Introduction n India: Domestic Entrepreneur led growth u Export Neutrality, Investment neutrality u Continue Policy, Institutional Reform F India has to speed up existing approach n Crisis originating AEs (USA, UK..) u Credit/Debt(de-leveraging) -> Growth u Fiscal Constraints: Ec power n Energy/Oil rich: Return to normal growth u Russia, Brazil

4 19 March, 2009CPR: AV4 Global Financial & Economic Crisis n Growth bubble => Below trend n GDP medium Term: Lower trend growth due to higher public debt? n Trade/Exports: Globalisation of Production (fragmentation and dispersal) u Trend reaching completion? u Bubble element => Compensated by below trend u Heightened risk and risk perception 10 March, 20104AV

5 20th August 2010TripolarInstPeace:av5 Fiscal Impact n Fiscal Deficits: USA, EU (Japan) u Foreign Aid, Military expenditures n China: Fiscal Surplus, CAS n Global rebalancing(US CAD)? n China: Domestic caution (Ec-tech) u External Assertion(Pol-Mil nationalists) F S China Sea, Arunachal-Kashmir

6 20th August 2010TripolarInstPeace:av6 Impact on Exports n Global GDP & Import slowdown u Export oriented => Export neutral n Development strategy, Growth model u E, S E Asia: FDI-Export or Public Investment- Export led growth model n India: Domestic Entrepreneur led gr u Export Neutrality, Investment neutrality u Continue Policy, Institutional Reform

7 10 March, 2010AV7 Growth Model: CHINA n Goal / Objective : Growth Maximization n Means: Maximize Investment u Foundation of Growth F Socialist Owned Enterprise =>100% Reinvestment of returns (0 dividends) => High investment (Kuijs) F Govt: Low tax rates, Low social expenditures, Solid investment in (quasi) Public goods u Engine of Growth: Exports and FDI/Public Investment F Export Machine: Comprehensive Support till full establishment, support at any sign of trouble u Initial (pre Asian crisis): FDI u Post Asian Crisis: Public/ Infrastructure Investment

8 10 March, 2010AV8 Socialist Control And Subsidies n Capital Intermediation u Domestic Saving Banks: Public Sector or Govt. Depts? n Controls used to provide indirect subsidies for u FDI (Capital/Skill intensive- KI/SI) u Exports: Vent for Surplus, export at any cost F Cap cost 0 to supplier of CG, Intermediate, materials u SOE production, investment (inefficiency) n Infrastructure: Supply & Pricing (Capital subsidy) to ensure FDI (technology, expertise, export marketing) n Flip side: Controls subject to Corruption n Useful in catch up phase, not at the frontier (HIC)

9 10 March, 2010AV9 Strategic Weakness and Risks n Weakness: Other side of coin of past growth drivers u Govt/Socialist Ownership: Excess capacity (e.g. infrastructure), Falling returns, Rising NPAs, Falling public saving/investment u Rising export share: Vent for Surplus F =>Falling unit values; Rising subsidies (NPAs) u Knife-edge character of FDI-export model F Asian crises (euphoria risk) F Over dependence on FDI F Center and Periphery (Prebisch-Singer)

10 Share of World Exports 10 March, 2010AV10

11 Country Shares of World Exports 10 March, 2010AV11

12 Export-GDP RATIOS 10 March, 2010AV12

13 Balance of Payments and Exchange Rate 10 March, 2010AV13

14 Demand Contribution To Growth: China and India 10 March, 2010AV14

15 Consumption-GDP RATIOS 10 March, 2010AV15

16 Manufacturing: Export-Gdp 10 March, 2010AV16

17 Growth of World Exports 10 March, 2010AV17

18 Investment Rate: China/India 10 March, 2010AV18

19 Tri-polar: USA, China, India 20th August 2010TripolarInstPeace:av19

20 10 March, 2010AV20 Global Implication n Bi-Polar (USA-China): 2020 n US Fallibility => China Confidence => Global Assertiveness n Tri polar(US-China-India): 2035 n Quadri-polar? EU- Opposite pulls

21 10 March, 2010AV21 CONCLUSION n India: Return to high growth path ( %) by n Growth: China’s < India’s (mid-decade) u Can offset external demand by public investment for ~ 5 years (i.e. till 2012) n China: Model change( ) u Demand: Export => Domestic u PSU saving-inv => Private Income-Cons u PSU investment: Manf. => Services u Public Inf expend: Physical => Social


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