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

2. 10 March, 2010AV2 Introduction n Global Crises: Worst since Great Deprsn u Global GDP and 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 growth u Export Neutrality, Investment neutrality u Continue Policy, Institutional Reform

3. 19 March, 2009CPR: AV3 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, 20103AV

4. 10 March, 2010AV4 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

5. 10 March, 2010AV5 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

6. 10 March, 2010AV6 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)

7. Share of World Exports 10 March, 2010AV7

8. Country Shares of World Exports 10 March, 2010AV8

9. Export-GDP RATIOS 10 March, 2010AV9

10. Balance of Payments and Exchange Rate 10 March, 2010AV10

11. Demand Contribution To Growth: China and India 10 March, 2010AV11

12. Consumption-GDP RATIOS 10 March, 2010AV12

13. Manufacturing: Export-Gdp 10 March, 2010AV13

14. Growth of World Exports 10 March, 2010AV14

15. Investment Rate: China/India 10 March, 2010AV15

16. 10 March, 2010AV16 CONCLUSION n Growth: China’s < India’s mid-decade. u Can offset external demand by public investment for 3-5 years n China will have to change model:- u Demand: Export => Domestic u PSU saving => Private Income and consumption u PSU investment: Manuf => Services u Public Expenditure: Physical Inf=> Social n India: Hi gr. path (8.5 -9%) by 2011