Talk by Dr. V Anantha Nageswaran on Recent Developments in the Indian and Chinese Economies

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VIF welcomed Dr V Anantha Nageswaran, noted economist, author and its Visiting Fellow, on 1st August 2013 to speak on the myths and realities of China’s growth story and the Indian economic situation. Pointing out that it was China’s economy that has supported its rise as the region’s political and military power, VIF Director, Mr Ajit Doval, KC, said therefore, it is vital to understand the dynamics of the Chinese economic growth and its various hidden undercurrents.

In his presentation, Dr. Nageswaran argued that the real GDP growth rate figures being proclaimed by China are contradictory to certain other figures such as the nominal GDP growth, credit to output ratio, real lending rates, and export trends. He mentioned that whenever China faced a situation of slowing growth rate, they have expanded their credits. Most of this credit expansion has come from the shadow banking sector of the Chinese economy which are not supervised by financial authorities. He also expressed his skepticism as to whether the new leadership is willing to bring the necessary economy reforms as it had promised.

A credit crunch in China will have its negative spill-over effect more on the region and among the emerging market economies than in Western developed nations. Therefore, while the Indian economy must carefully observe the progress of events, it must also prepare to best utilize the opportunity which we might receive if the Chinese economy falters.

Giving his assessment of the economic scenario in India, Dr Nageswaran expressed concern over the Government’s decision to introduce the Food Security Bill, saying that such vast public expenditure, without a clear line of supply and under-developed storage capacities will not help the poor, but instead prove to be a massive increase in the government’s expenditure, resulting in further depreciation of Rupee. He also advised that the RBI should continue to operate freely, without much interference from the Government.

Dr. Nageswaran underlined the fact that India faces classical macroeconomic problems and the solution is not complex. What is more complicated is the politics of economy, wherein the Indian political class and the population must join hands together, as they would in case of a war.
The well-informed presentation was followed by a Q & A session on the future of the Chinese economy and its impact over the region, especially India.