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Indian economy vulnerable to oil and capital flow shocks: YV Reddy

E Kumar Sharma     November 20, 2019

In this fast changing world, there are apparently new concerns emerging for India that it can hardly afford to ignore. Listening to Y V Reddy, the former governor of the Reserve Bank of India, speak on the topic of the "evolving global context" one could hardly miss the point that India may need some new dose of dexterity and nibbleness built into its policy as it tries to meaningfully fit itself into this changing global landscape. One, that is increasingly becoming risky and uncertain.

Reddy was speaking at a two-day leadership conclave jointly organized by the Institute for Advanced Studies in Complex Choices and XLRI, Jamshedpur, in Hyderabad.

The bipolar world that had the USA and the erstwhile Soviet Union as two major power centres has now evolved to the USA and China. Reddy said, "The difference between the old and the new bipolar world is that China and America have close economic integration. This complicates the fight for supremacy underway."

He cautioned that "the recent developments around China, Iran and the Middle East have the potential to generate two types of shocks - oil and capital flows and India is vulnerable to both."

Reddy sees in the global trade wars a collapse of the global trade system and in his quick staccato style, listed out few pointers: "China dominates global trade, particularly in goods. It has gained considerable entry into services also.

There is divergence between dominance of global trade, dominated by China and global finance and money, dominated by the US. This is one source of conflict. The global trading system is today complicated by the difficulty of defining risks of origin, differentiating between the goods and services component, and the presence of global corporate giants."

But, he reminds that "China made a successful entry with global financial giants. More importantly, China's financial giants are driven by government. In the US, the financial interest seems to drive governments.

Reddy concluded with pointers to the emerging global challenges. "There are three economic challenges which are global" and these were "climate change, demographic divergences - capital is global but labour is national," he reminded.

Finally, there is the challenge of "technology that will disturb global balances in future. Technological progress is so fast that the disruptive nature of technological developments is so deep that institutions are finding it difficult to cope with these changes. Further, technologies tend to cut across national boundaries sooner than later."

The Institute for Advanced Studies in Complex Choices (IASCC) has been co-founded by Professor Anil K Sood, with an aim to focus on education programmes that will help raise probability of success through context-appropriate choices and enhance critical thinking and reflective practice capability.

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