India’s Economic Troubles “Overplayed”, Says World Bank Chief Economist
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The gloom and doom surrounding India’s economic crisis has been “overplayed”, said chief economist at the World Bank Kaushik Basu on Monday, dismissing rumours that that India will need to seek a line of credit from the International Monetary Fund to help fix the economy.
The gloom and doom surrounding India’s economic crisis has been “overplayed”, said chief economist at the World Bank Kaushik Basu on Monday, dismissing rumours that that India will need to seek a line of credit from the International Monetary Fund to help fix the economy.
Speaking to reporters on the sidelines of an event in New Delhi, Basu said India was not in danger of a full-blown economic crisis, despite mounting fears about Asia’s third largest economy, which is struggling with a gaping current account deficit that has helped push the rupee to record lows.
“Growth may not have bottomed out. We have further to go (down), but the situation is not as bad as is being captured by the mood and captured in the headlines,” he said, advising against too much self-criticism over the economy’s current state because it is damaging and “feeds into country’s ethos in a way that is not called for.”
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While India’s current crisis has evoked parallels to 1991, when it had to pledge gold to the International Monetary Fund, Basu said such comparisons were unwarranted and India need not seek a credit line from the IMF.
“Several people have come to me (asking) are we back to 1991? That is completely a non-question because if you look at a couple of numbers there is absolutely no comparison,” said Basu, who was India’s chief economic adviser before he took up the position at the World Bank last year.
“India is nowhere near the 1991 crisis. The gloom is being overplayed,” he said. “India has enough foreign exchange reserves, so the question of having to turn to the IMF is not there.”
His comments came as the rupee hit a new low of 62.70 to the dollar and shares slipped another 2 percent Monday on growing fears about the economy and the government’s ability to deal with the situation.
Efforts to prop up the currency, which has tumbled nearly 13 percent against the dollar this year, have thus far proved ineffective, making it the worst performer in emerging Asia and threatening to drive the region’s third-largest economy towards a full-blown crisis.
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India has been particularly vulnerable since the U.S. Federal Reserve signalled that it may begin tapering its monetary stimulus this year. Since June 1, overseas funds have pulled out $11.5 billion from India’s stock and debt markets.
In July, Finance Minister Palaniappan Chidambaram forecast economic growth of 5.5 – 6.0 percent this fiscal year, slashing it from an earlier forecast of 6.1 – 6.7 percent.
However, economists warn that growth could slip below 5.5 percent, as weak liquidity and investment and falling consumer demand continue to hurt the economy.
Basu warned that the slowdown in the Indian economy may not have ended. The pace of “growth could go down a little bit more before it picks up,” he said.
