US economy will bounce back, says Chidambaram
According to Mr Chidambaram, the US is not in a recession, and it will bounce back. It is a knowledge-based society. It is just a hunch that it is going through a slowdown.
By Sheila Mathrani, TNN |
DAVOS: Should slowdowns be feared and should policy corrections be made? The first of the thought-provoking sessions on Day Three at the World Economic Forum in Davos pondered over these questions. The US situation was uppermost in the minds of the speakers as they debated whether market corrections deliver a healthier economy in the long run, and when policymakers should fight an eventual correction.
The general opinion was that slowdowns point to the end of one economic cycle with Tokyo University professor Takatoshi Ito stating that the cycles have to come to their logical conclusion and cannot be stopped midway.
Finance minister P Chidambaram said a slowdown is a pointer to the end of one economic cycle, but that “the US slowdown is worrying”. “We have to tolerate slowdown. Recession is a negative growth rate. In our profession, we manage to build micro-economic policies,” he said, adding: “Control the ups and downs by policy, but do not overdo it.”
According to Mr Chidambaram, the US is not in a recession, and it will bounce back. It is a knowledge-based society. It is just a hunch that it is going through a slowdown. It is not going through negative growth and can bounce back after two-three quarters, he observed.
Mr Chidambaram said the salaried and job-holders will be able to tide over a slowdown better than the poor. With appropriate policies in place, they will be able to hold onto their jobs. There is a possibility that they will borrow from banks, thus stimulating banks. However, it is the poor who will be hardest-hit.
Asked how to approach a slowdown, Mr Chidambaram said the policy stimuli should be so carefully calibrated that the poor are not hit, with a tax-break system in place. He said as a politician he would be in trouble if inflation touches 6-7%. “Therefore, everything has to be kept on target. Inflation must be kept low if a high rate of growth is to be aimed for.”
On whether India and China can step in a slowdown, Mr Chidambaram pointed to statistics provided by Stephen Roach that the US consumption is $9.5 trillion, whereas the consumption of India and China is $1.75 trillion. Therefore, he said, they cannot be expected to replace the US consumption gap. But it also depends on the extent that India and China are growing.
On whether India will be affected by the US slowdown, Mr Chidambaram said the growth in India and China cannot be decoupled from that of the US. India is not as affected as China, which depends on exports. While India’s growth is driven mainly by its domestic consumption and investments, if the US slowdown spreads to other countries and affects the European Union, India’s exports would suffer, he added.
On the cause of the slowdown, Mr Chidambaram was forthright, stating: “Clearly, there was a lack of regulation... If regulators had done their job, the subprime crisis might not have happened. It is a clear case of failure of regulators.”
The general opinion was that slowdowns point to the end of one economic cycle with Tokyo University professor Takatoshi Ito stating that the cycles have to come to their logical conclusion and cannot be stopped midway.
Finance minister P Chidambaram said a slowdown is a pointer to the end of one economic cycle, but that “the US slowdown is worrying”. “We have to tolerate slowdown. Recession is a negative growth rate. In our profession, we manage to build micro-economic policies,” he said, adding: “Control the ups and downs by policy, but do not overdo it.”
According to Mr Chidambaram, the US is not in a recession, and it will bounce back. It is a knowledge-based society. It is just a hunch that it is going through a slowdown. It is not going through negative growth and can bounce back after two-three quarters, he observed.
Mr Chidambaram said the salaried and job-holders will be able to tide over a slowdown better than the poor. With appropriate policies in place, they will be able to hold onto their jobs. There is a possibility that they will borrow from banks, thus stimulating banks. However, it is the poor who will be hardest-hit.
Asked how to approach a slowdown, Mr Chidambaram said the policy stimuli should be so carefully calibrated that the poor are not hit, with a tax-break system in place. He said as a politician he would be in trouble if inflation touches 6-7%. “Therefore, everything has to be kept on target. Inflation must be kept low if a high rate of growth is to be aimed for.”
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On whether India and China can step in a slowdown, Mr Chidambaram pointed to statistics provided by Stephen Roach that the US consumption is $9.5 trillion, whereas the consumption of India and China is $1.75 trillion. Therefore, he said, they cannot be expected to replace the US consumption gap. But it also depends on the extent that India and China are growing.
On whether India will be affected by the US slowdown, Mr Chidambaram said the growth in India and China cannot be decoupled from that of the US. India is not as affected as China, which depends on exports. While India’s growth is driven mainly by its domestic consumption and investments, if the US slowdown spreads to other countries and affects the European Union, India’s exports would suffer, he added.
On the cause of the slowdown, Mr Chidambaram was forthright, stating: “Clearly, there was a lack of regulation... If regulators had done their job, the subprime crisis might not have happened. It is a clear case of failure of regulators.”
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