Optimism over India, but Is It Sustainable?
ET NOW brought together Rashesh Shah, chairman of Edelweiss Group, and Nouriel Roubini, professor of economics, New York University, at the Edelweiss India Conference 2010 for an exclusive dialogue. Here are excerpts from their conversation.
Rashesh Shah: It’s obvious that there is going to be an exit strategy (from the stimulus packages), as and when that unfolds, what is the impact of it on asset prices in emerging markets equity markets and real estate?
Nouriel Roubini: It seems that the world is growing at two different speeds — economic growth is much more rapid in emerging markets than it is in advanced economies. The exit from both the monetary stimulus and fiscal stimulus is going to come earlier in emerging markets, such as China and India, and then it is going to be in the US, Europe and Japan.
A number of emerging markets has started to raise interest rates, that means capital inflows may become even more robust in emerging markets. So it’s a big challenge and the easy liquidity is fuelling an increase in asset prices, but, of course, over a time, we have to make sure that it goes into productive investment. Otherwise, there could be planting the seeds of potential asset bubble.
Rashesh Shah: You have been following India closely, and you talk to investors too. What are the headlines about Indian economy?
Nouriel Roubini: I would say that there is a meaningful amount of optimism about economic and financial prospects of India, both among foreign investors and also local businesses and investors. I think that the pick-up in growth is real. India could reach a decade of economic growth in double digits. But to achieve that, it’s important to accelerate a number of reforms. Certainly, there is still a significant fiscal gap, its not a problem today. But it’s necessary to make sure that there is enough combination for raising revenues, have a more efficient tax system and control over spending. India needs to accelerate a number of microeconomic and structural reform that can increase even further potential output growth. What is your view on the key elements of those reforms that are going to be crucial and important on the structural side?
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