Let China not kill your manufacturing: Roubini to India
Let China not kill your manufacturing: Roubini to IndiaNew Delhi, Apr 25 (KNN) Don’t let your manufacturing die and be swamped by Chinese goods. This was the advice given to India by world renowned economist Nouriel Roubini who is credited for predicting the 2008 financial crisis.
Considering that Indian markets are inundated with cheap Chinese goods, India should compete far more aggressively by cutting interest rates and not letting domestic manufacturing die, according to the New York University professor.
“While lowering rates could be a short-term prescription to get out of the slowdown rut, in the medium term, India should not let manufacturing to die in the face of buoyant growth in services,” he said.
"There may be room for soft policies...In my view, in the next 12 months, there may be room for another 50 basis points cut," added the economist.
One of Wall Street’s most closely followed economists; Roubini is currently on a short visit to India which included addressing a seminar in Mumbai yesterday.
"India has a significant trade imbalance with China in goods especially and that demand can become a problem. India cannot afford to have an early demise of its manufacturing. The risk is that cheap and good quality Chinese goods are going to crowd out Indian manufactured sector," he told the media.
In view of the economic unpredictability, Roubini is of the opinion that the Chinese growth model is not sustainable. He was certain that India had an advantage with regard to the export of services, far greater that the economies of China and European countries; the sector having further growth potential.
Since global growth in services can only grow, India, said Prof Roubini, could have a long-term advantage, with services like IT services, financial services, medical or vocational services becoming more tradable.
However for that to happen, he believes that India would have to invest in human capital and skills to sustain its competitive advantage. He stressed, “structural issues on the manufacturing need to be immediately addressed, to address steep trade imbalance in imports of goods with China.”
Roubini expects the RBI to continue with its soft monetary policy and cut key policy rates by another half a percentage points during the next 12 months.
In view of India's high current account deficit, which could widen with rate cuts and due to the central bank's growth-versus-inflation dilemma, Roubini feels weakening global economy and softer commodity prices could counter a possible threat of rate cuts weakening the currency and feeding inflation.
The professor however commended the government’s efforts towards fiscal consolidation, despite the pace of reforms being slower than required.
"The fiscal deficit, while large, is kept under control, and, therefore, given all the political constraints, things are at least moving in the right direction," he said.
However, he was comparatively bullish with regard to India, even though he stuck to his view that a slowdown in China and BRIC markets could be "more than just a global scare" and "we may have a problem a few months down the line".
Having earned the nickname Dr Doom for his bearish or pessimistic views, Roubini’s opinions are often sought after by monetary authorities and finance ministers around the world. (KNN)