CII - Confederation of Indian Industry : Experts on Emerging Asia Urge Governments to Be More Adaptive

At a Panel on the Outlook for Asian Emerging Markets, Officials of the IMF and Indian Government Say Leaders Must Continuously Adjust Their Domestic Policies to Keep Up With the Changing Global Environment

A panel of experts-including Dr Montek Singh Ahluwalia, Deputy Chairman, Planning Commission, India and  Dr Min Zhu, Deputy Director General , IMF-said today that governments in emerging Asian countries need to get better at adapting their domestic policies to changing global conditions.

Speaking at the CII-BCG Breakfast Session, today, during the World Economic Forum's annual meeting in Davos, Switzerland, Dr. Min Zhu said that as emerging Asia faces a new period of diminished growth, governments in the region will have to continuously adjust their fiscal and monetary policies and structures to deal with a slowdown in the global economy.

Zhu said that after roughly 15 years of strong growth, the IMF projects real GDP growth in emerging Asia will be 6.7% this year due to an overall cooling in the global economy and in particular a slowdown in China.

To minimize short-term gyrations and achieve more stable GDP growth, he said that governments in emerging Asia nations-and other developing markets-need to manage their policies actively and react faster to external forces. He cautioned them not to be too internally focused.

"The key issue is, in the long run, if you want to have sustainable growth, whether you will be able to adjust your policy and internal structure…according to the external situation," he told a packed room inside the Hotel Belvedere.

Two developments he flagged as major challenges to growth are the U.S. Federal Reserve's planned reduction in its bond-buying program and the slowing growth rate in China.

While "not concerned" about China's slowdown, he said that its planned reduction in investment and push for increased internal consumption will have "a profound impact" on the region-so governments need to pay close attention. China's current level of investment-46% of its GDP-is "not sustainable" and should come down to 36%, ideally within five or six years. If Chinese investment drops by one percent, it will reduce the GDP growth rates of its trade partners by 0.2 to 0.4 %, he said.

Dr. Montek Singh Ahluwalia said he broadly agreed with Dr Zhu's cautionary comments.

Noting that India's growth rate has been about 5% since last year, down significantly from its rate before the financial crisis, he said that India's government could not blame the country's flat growth entirely on the global economy. He said roughly a third of its slowdown could be attributed to a cyclical downturn and two-thirds to domestic factors. The government needs to anticipate obstacles to growth better and adapt its policies faster, he admitted.

As an example, he cited his country's investment in infrastructure. In response to a big increase in the number of infrastructure projects planned, the government was not able to give regulatory clearances for large projects fast enough in recent years, causing some to stall.

"The government is now working on systems that would make it a lot easier to get this kind of supporting clearance done," he said. He noted, however, that major progress on the infrastructure bottleneck would likely need to wait until after India's general election in May.

He added that in his view, India could potentially sustain a growth rate of 7%. "The question is, how long will  it take to get there?" he said.

Mr Kris Gopalakrishnan, President, CII expressed optimism about the prospects of Asian emerging markets.

"There will always be challenges and risks. But when I look at it, the opportunities are huge, and at the macro level, the projection that this will be the Asia century, I believe, will be proven right."

Dr. Janmejaya Sinha, Chairman of the Asia-Pacific region for BCG, urged audience members to remain focused on the long-term growth trajectory of emerging Asia and not get caught up in near-term zigzags.

"These mood swings, which go from hubris to helplessness, is just the wrong way to look at this opportunity . Lets go to the trend line and beyond the headline."