Touched by sub-prime America

World Economic Forum founder Klaus Schwab mentioned to me that these summits have had their ups and downs but getting high quality foreign participation in the last couple of years has been effortless. This is not surprising, considering that India is the current global flavour, accentuated in no small measure by the impending uncertainties elsewhere. There were several interesting sessions. Finance Minister P. Chidambaram was honest enough to admit that coalition politics had stymied reforms in several key areas, particularly in the financial sector. His optimism about some tangible progress in the remaining 18 months of this Government in stalled areas like pension, insurance, and disinvestments deserves our fullest encouragement. May he succeed.

Ambani (described by Schwab a kind of ‘superpower’ himself) took a more optimistic view, believing that in the evolving perceptions geo-economics was beginning to matter more than geo-politics. The Indian developmental model, which combined poverty alleviation within a democratic fabric, was finding increasing favour even though the challenge for providing 100 million jobs over the next five years needed both innovation and technology for happy outcomes. Contrary to the concerns of Senator Bennett, Mahindra felt that Indians were not perceived as being overaggressive and generally more acceptable.

Roach definitely shared the pessimism of Bennett and felt that the US was not already in recession but was heading towards it anyway. It had in fact become a sub-prime economy with property values comparable to 1993 — a most unhappy year.

Unlike other analysts, Roach definitely believes that the de-coupling of Asia and the US was far less than was commonly accepted. Given the preponderance of numbers, the contagious effect of the US slowdown would be deep and widespread. In response to a question from me, Roach clarified that even though India has become more interdependent with the global economy, with exports now constituting to 20 per cent of its GDP, the contagion effect would be far less for us than for others. The most exposed was Japan and their high-export dependence makes them very vulnerable. The Chinese rate could come down from 11 per cent to 9 per cent and this, therefore, needed significant replacement through rising domestic consumption. Europe, too, would be hurt and it is not clear for how long and how deep the contagion effect could last.

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