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GLOBAL CRISIS: Impact On Growth Strategies

GLOBAL CRISIS: Impact On Growth Strategies. Arvind Virmani ( views are personal ). Introduction. Global Crises: Worst since Great Deprsn Global GDP and Import slowdown Export oriented => Export neutral Development strategy/Growth Model

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GLOBAL CRISIS: Impact On Growth Strategies

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  1. GLOBAL CRISIS: Impact On Growth Strategies Arvind Virmani (views are personal)

  2. Introduction • Global Crises: Worst since Great Deprsn • Global GDP and Import slowdown • Export oriented => Export neutral • Development strategy/Growth Model • E, S E Asia: FDI-Export or Public Investment-Export led growth model • India: Domestic Entrepreneur led growth • Export Neutrality, Investment neutrality • Continue Policy, Institutional Reform AV

  3. Global Financial & Economic Crisis Growth bubble => Below trend GDP medium Term: Lower trend growth due to higher public debt? Trade/Exports: Globalisation of Production (fragmentation and dispersal) Trend reaching completion? Bubble element => Compensated by below trend Heightened risk and risk perception 19 March, 2009 CPR: AV AV 3

  4. Socialist Control And Subsidies • Capital Intermediation • Domestic Saving Banks: Public Sector or Govt. Depts? • Controls used to provide indirect subsidies for • FDI (Capital/Skill intensive- KI/SI) • Exports: Vent for Surplus, export at any cost • Cap cost 0 to supplier of CG, Intermediate, materials • SOE production, investment (inefficiency) • Infrastructure: Supply & Pricing (Capital subsidy) to ensure FDI (technology, expertise, export marketing) • Flip side: Controls subject to Corruption AV

  5. Growth Model: CHINA • Goal / Objective : Growth Maximization • Means: Maximize Investment • Foundation of Growth • Socialist Owned Enterprise =>100% Reinvestment of returns (0 dividends) => High investment (Kuijs) • Govt: Low tax rates, Low social expenditures, Solid investment in (quasi) Public goods • Engine of Growth: Exports and FDI/Public Investment • Export Machine: Comprehensive Support till full establishment, support at any sign of trouble • Initial (pre Asian crisis): FDI • Post Asian Crisis: Public/Infrastructure Investment AV

  6. Strategic Weakness and Risks • Weakness: Other side of coin of past growth drivers • Govt/Socialist Ownership: Excess capacity (e.g. infrastructure), Falling returns, Rising NPAs, Falling public saving/investment • Rising export share: Vent for Surplus • =>Falling unit values; Rising subsidies (NPAs) • Knife-edge character of FDI-export model • Asian crises (euphoria risk) • Over dependence on FDI • Center and Periphery (Prebisch-Singer) AV

  7. Share of World Exports AV

  8. Country Shares of World Exports AV

  9. Export-GDP RATIOS AV

  10. Balance of Payments and Exchange Rate AV

  11. Demand Contribution To Growth: China and India AV

  12. Consumption-GDP RATIOS AV

  13. Manufacturing: Export-Gdp AV

  14. Growth of World Exports AV

  15. Investment Rate: China/India AV

  16. CONCLUSION • Growth: China’s < India’s mid-decade. • Can offset external demand by public investment for 3-5 years • China will have to change model:- • Demand: Export => Domestic • PSU saving => Private Income and consumption • PSU investment: Manuf => Services • Public Expenditure: Physical Inf=> Social • India: Hi gr. path (8.5 -9%) by 2011 AV

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