The Hindu Business Line : ‘Need to address structural problems in global economy’

Exim Bank Commencement Day: Mr Kemal Dervis (left), Administrator, United Nations Development Programme, and Mr. Shankarnarayan R. Rao, Executive Director, Export-Import Bank of India, at a press meet held in Mumbai on Tuesday. –

Our Bureau

Mumbai, March 18 The slowdown in the US economy will have an impact on other countries, including India, which have trade and economic links with that country. The Indian economy has been growing at the rate of more than eight per cent in the past three years. Whether India will continue to grow a the same rate despite the US slowdown needs to be seen, said Mr Kemal Dervis, Administrator, United Nations Development Programme.

“There will be a substantial slowdown in the US economy but whether it will go into a recession is what we need to wait and watch,” he said. Mr Dervis said that an economy would be said to be in a recession when it posts negative growth in two subsequent quarters.

Speaking at the 23rd Exim Bank Commencement Day Annual Lecture, Mr Dervis stressed the imperative of having in place financial sector regulations that focus on the nature of structural problems in the financial sector, rather than use of short-term macroeconomic instruments, in order to reap the benefits of technical progress and global opportunities in a more steady fashion.

Emerging South

Mr Dervis highlighted the significant structural changes that have taken place in the global economy in recent years, characterised by the increasing share of the “emerging South", driven primarily by India and China, in global GDP.

The developing countries as a whole now account for about one half of global GDP compared to about 37 per cent in the early 1960s, he said.

Mr Dervis also pointed out that the “emerging South” has become a significant contributor to world growth, in terms of purchasing power parity, with a share greater than two-thirds of the total, indicating the decreasing dependence of overall global growth on the rich “North”.

In line with this, Mr Dervis opined that that it was time for the “emerging South" to assume increased role in international fora and community. The increasing trade and financial integration in the global economy and the strong linkages between the “North” and the “emerging South” will transmit the impulses originated in either group of countries on the other, and on the world economy as a whole, as witnessed in the aftermath of the recent US sub-prime crisis, Mr Dervis said.

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