The Hindu Business Line : The importance of being BRICS

We believe we should work closer with the BRIC countries as they are importantly placed in the world economy. Our mandate is to make sure we contribute to the better functioning of the world economy.

MR ANGEL GURRIA, SECRETARY-GENERAL, OECD

G. Srinivasan

The Organisation for Economic Cooperation and Development (OECD), the Paris-based inter-governmental think-tank of 30 rich industrial countries, has been advising its member-countries on the best policy options to promote economic development for the last four decades. Even within the rich countries’ club, not all member-countries have advanced at the same pace, as the challenges in implementing economic reforms are vastly different depending on the context. While OE CD has been making country reports of its members for decades, it is the first time it has done so for a non-member country such as India, even as it has taken on board emerging economies such as China, Brazil, India, Indonesia and South Africa for “enhanced engagement” since May 2007.

The Secretary-General of OECD, Mr Angel Gurria, was in the Capital on October 9 to make a presentation of the first-ever OECD Economic Survey of India. Following a distinguished public career in Mexico, including as the country’s Minister for Foreign Affairs and Minister of Finance and Public Credit, Mr Gurria was selected as the Secretary-General of the rich country think-tank and assumed office on June 1, 2006. Exactly a year and a quarter into the job, Mr Gurria came to India, though he has been here six times earlier, including on an extensive tour of South India with his family as a tourist. Between meetings with the Finance Minister, the Commerce and Industry Minister and the Planning Commission Deputy Chairman, Mr Gurria made some time to talk to Business Line.

With a panache that comes with heading an international body and with great enthusiasm, he maintains that “what is amazing about India is the speed of change”. Mr Gurria states that “sharing worldwide experience and benchmarking national policies against best practices within the OECD framework may help garner acceptance for the reform process in India”.

He contends that “we are seeking to explain the implication of inaction or delay, as well as to provide options for helping to create the political momentum necessary to reform successfully even when sometimes the so-called ‘political economy of reform’ becomes more complex than the design of the reforms themselves”.

Mr Gurria views the Indian economy with a lot of optimism as it is now “the trailblazer with potential to continue growing close to around 10 per cent for an extended period”. However, he hastens to caution that “India needs to look at different areas because otherwise the growth could become unbalanced or some structural elements could become obstacles”.

Here are some excerpts from a discussion with Mr Gurria on a range of issues of national and global significance.

On the global economy: The growth prospect is somewhat diminished because of the crisis in the market. But there is also rebalancing because the United States is growing less and Europe is now growing a bit more. Japan is still a little bit too close to deflation for comfort. You have less growth in the global economy because you were at the end of an expansion period and then we had this market turbulence.

Europe is going through a period of what I called new-found confidence – may be because they have new leadership in the key countries—in Germany, England and France. Europe is, of course, itself an economic unit—the largest exporter in the world and therefore the policies of Europe are very important.

Where Europe needs to catch up is on the side of productivity, education, university, R&D and on the side of flexibility in the labour market—precisely what we are mentioning in India. But in Europe that is very important because in country after country, flexibility or lack of flexibility in the labour market is sometimes causing for low competitiveness.

On economic reforms: Reforms pay and India should persevere and keep the reforms and 10 per cent growth is possible. We don’t see them possible if those reforms are not undertaken. Reforms in the domestic market involving a greater role for the private sector and a reduction of the role of the State in economic affairs have allowed India to benefit from globalisation.

The outcome of these reforms has been that growth has accelerated markedly and has reached 9 per cent. More importantly, it would seem that real incomes can now rise by at least 7 per cent annually on a sustainable basis, enough to double real incomes in a decade and put India on the path to convergence with the more advanced economies.

Undertaking a series of economic reforms would allow India to reach a sustainable growth rate of 10 per cent and the areas to focus include improving the business milieu, infrastructure, public finances and labour market reform. Fiscal consolidation or maintaining fiscal rectitude is not a moral or ethical issue. It is a question of whether by having a lower or a higher deficit, you have a larger or higher reduction of the availability of savings for the private sector to grow and invest.

There is nothing that tells you should not spend more. The only question is on which you will spend if you have additional sources of resource because if you don’t you will create a deficit and the deficit will generate inflation.

You need to have a deficit in the current account and you will have to be able to borrow to cover it and then your debt will go up.

Now the debt of India has been going down from 84 per cent to 75 per cent which is a good trend and we should continue on that.

On OECD’s enhanced engagement with emerging economies: The reason why we believe that we should work closer with these countries is because they are very largely placed in the world economy. Our mandate is to make sure that we contribute to the better functioning of the world economy.

We don’t have a very close working relationship with the so-called BRICS (Brazil, Russia, India, China and South Africa) and countries like Indonesia. So obviously, we will not be able to claim that we are making a global statement or that we are taking into consideration all the global players. We aim to be global and therefore we need to discuss with these countries.

On higher flow of official development assistance (ODA): We are looking with some concern as to whether the donor countries are going to make those commitments they have made to double ODA for Africa or increase by $50 billion — the so-called Gleneagles commitment of G-8. sThe way the numbers are looking now, I don’t think they are going to make it by 2010. The other concern, more importantly, is whether we will be able to make the Millennium Development Goals (MDGs) by 2015.

For this we need to continue to channel an increasing flow of resources to those countries. But those countries are the really ones who have to take the basic decision to have a better absorptive capacity not only of the aid but also more flows, savings from the markets, including debts for projects that are feasible.”

The OECD is keen to work closer with Brazil, Russia, India, China and South Africa is because they are very largely placed in the world economy, says its Secretary General, Mr Angel Gurria.