Economists suggest developing nations to have disaster back-up plans

NEW DELHI: Renowned economists from all over world said that emerging economies like India should develop disaster back-up plans to keep their economies, and that of the world, afloat.

“We might be facing decades of slow growth and stagnation. Emerging economies will need to look at worse case scenarios and develop disaster back-up plans,” Richard Freeman, professor of economics at the Harvard University said while speaking at the Delhi Economics Conclave on Wednesday.

The slowdown is expected to be aggravated due to the lack of policy and fiscal space available to governments which is in contrast to the 2008-09 crisis. Nobel Laureate Amartya Sen championed the cause of adding stimulus to the economy when most governments are actively considering austerity measures.

Sen said that this would be a mistake and will further aggravate recovery prospects. “The focus on financial responsibility is ultimately needed, but the priority on financial curtailment — at a time the global economy needs stimulus is — a mistake,” Sen said.

“The crisis is as deep rooted as it is because of unclear thinking by policy makers,” he added. For most, the sovereign debt crisis in Europe, rise in unemployment rate in the UK and the US and government austerity measures are problems that will continue to pester recovery prospects in future.

“The situation is very bad; there are not many alternatives available to rectify the situation. The fiscal and policy space available to most are highly limited,” said Maurice Obstfeld, professor with University of California, Berkeley.

He pointed out that India should control its current account deficit given the extremely negative global economic scenario. Freeman stated that dealing with the challenge of stimulating growth in an increasingly adverse global environment for emerging economies will be difficult as there is no historical precedent to the scenario.