Global Financial Crisis and India

Greetings from the Australian National University in Canberra, where Dr D. Subbarao (దువ్వూరి సుబ్బారావు), Governor of the Reserve Bank of India (RBI), is speaking on "India and the global financial crisis" in the 2011 K R Narayanan Oration. This was preceded by a message from the President of India, about the strength of the Indian economy.

Dr Subbarao started his talk by quoting K R Narayanan commenting that globalisation was not the end of history. He then pointed out that the latest Global Financial Crisis (GFC) was truly global. He humorously pointed out his term as reserve bank governor started just before the GFC, so some blamed him for it. India had a well regulated financial sector but was still hit by the GFC. India had a drop in the Indian Rupee, with overseas investments leaving. Local companies withdrew funds from the local money market, causing a shortage of capital. The RBI reacted by ensuring local liquidity, foreign exchange liquidity and credit flow to "productive" sectors. As a result the economy recovered quickly, but there is inflation the RBI is addressing with interest rate increases. Dr Subbarao commented that it did not so much matter what the RBI did during the GFC, as long as it was seen to be doing something. It was also more important to manage the end of the GFC measures, than their introduction.

Dr Subbarao's Lessons from the GFC:

1. In a globalizing world, decoupling does not work. As an example of this, under conventional economic theory, house prices are a purely local issue, but a collapse in house prices in the USA caused the GFC.
   
2. Global imbalances need to be redressed for the sake of global stability. The GFC was caused by global imbalances, with surpluses in China and Asia and deficits in the USA.
3. Global problems require global coordination.
   Dr Subbarao suggested that the level of agreement by countries during the GFC could not be expected into the future. But global imbalances remain and require coordination.
   
4. Price Stability and Macroeconomic Stability do not guarantee Financial Stability.
5. Micro-prudential supervision is necessary, but not sufficient. Needs to be supplemented by macro-prudential oversight.
6. Capital controls are not only unavoidable, but advisable in certain circumstances. Dr Subbara's law of capital flows is: "You never get capital flows at the level and time you want".
7. Economics is not physics. Dr Subbara pointed out that the GFC was predicted, but its exact manifestation was not.
8. Having a sense of economic history is important to prevent and resolve financial crisis.
   

A podcast of the presentation will be available in the next few days.

Dr Subbarao has earlier been Secretary to the Prime Minister's Economic Advisory Council (2005-2007), lead economist in the World Bank (1999-2004), Finance Secretary to the Government of Andhra Pradesh (1993-98) and Joint Secretary in the Department of Economic Affairs, Ministry of Finance, Government of India (1988-1993).

Dr Subbarao has wide experience in public finance. In the World Bank, he worked on issues of public finance in countries of Africa and East Asia. He managed a flagship study on decentralisation across major countries of East Asia including China, Indonesia, Vietnam, Philippines and Cambodia. Dr Subbarao was also involved in initiation of fiscal reforms at the state level and has written extensively on issues in public finance, decentralisation and political economy of reforms.

Dr D. Subbarao will present the 2011 K R Narayanan Oration - ‘India and the global financial crisis – what have we learnt?’. He is the 22nd Governor of the Reserve Bank of India. Prior to this appointment, Dr Subbarao was the Finance Secretary in the Ministry of Finance, Government of India.
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Reserve Bank of India Governor on Global Financial Crisis

Dr D. Subbarao (దువ్వూరి సుబ్బారావు), Governor of the Reserve Bank of India, will speak on "India and the global financial crisis – what have we learnt?" at the Austrlaian National Unviersity in Canberra, 23 June 2011. This is the 2011 K R Narayanan Oration.

Dr Subbarao has earlier been Secretary to the Prime Minister's Economic Advisory Council (2005-2007), lead economist in the World Bank (1999-2004), Finance Secretary to the Government of Andhra Pradesh (1993-98) and Joint Secretary in the Department of Economic Affairs, Ministry of Finance, Government of India (1988-1993).

Dr Subbarao has wide experience in public finance. In the World Bank, he worked on issues of public finance in countries of Africa and East Asia. He managed a flagship study on decentralisation across major countries of East Asia including China, Indonesia, Vietnam, Philippines and Cambodia. Dr Subbarao was also involved in initiation of fiscal reforms at the state level and has written extensively on issues in public finance, decentralisation and political economy of reforms.

Dr D. Subbarao will present the 2011 K R Narayanan Oration - ‘India and the global financial crisis – what have we learnt?’. He is the 22nd Governor of the Reserve Bank of India. Prior to this appointment, Dr Subbarao was the Finance Secretary in the Ministry of Finance, Government of India.
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Environmentalism and Equity

Ms Sunita Narain, Director of the Centre for Science & Environment, just finished the 2008 K R Narayanan Oration at the ANU in Canbera on "Why Environmentalism Needs Equity: Learning from the environmentalism of the poor to build our common future". She nominated fuel cost, climate change and food security as era for our age. One issue, biofuels, wraps up many of these issues and the ones of equity.

It was an honour to be present at this oration. Last year the oration was by Dr Rajendra K Pachauri, who shortly after won the Noble prize for his work as the head of the Intergovernmental Panel on Climate Change. Unfortunately the world does not necessarily listen to such eminent persons, as we should.

Ms Narain suggests what is needed is environmentalism of the poor. The industrialised world industrialised first and then responded to the waste generated. Most of the world will demand a new approach where progress will not cause environmental degradation. India's minerals are located where the forests, water catchments and poverty are located.

Ms Narain argued that India's democracy would not tolerate degradation of the environment. She used as an example grass roots action in Goa to block access for mining companies (I saw some of the mining industry on a visit to Goa in 2005).

Another example given was approaches to cleaning up air pollution in cities. She argued that India's use of LPG for vehicles had made a significant improvement in air quality. One problem is that in Delhi most of the road space is taken up by private cars, while most people are transported in buses. The introduction of bus lanes had been opposed by car drivers.Ms Narain did not mention the Delhi Mass Rapid Transit System (MRTS, Delhi Metro or दिल्ली मेट्रो), which is an example of the problems with high technology solutions. Perhaps Indian experts could help Sydney's transport problems).

Ms Narain argued that a change in the framework, with equity, so that the global South can implement CO2 reduction, before becoming rich, rather than after, as happend in the North. The system suggested was a per-captia emissions allowance. In this way countries such as India could trade some of their allowance with countries such as Australia. This might be a good way to use carbon trading mechanisms to include the world.

At question time I asked if market mechanisms would be sufficient or was a philosophical change to issues such as climate change needed. The answer was that this is a political issue and the community needs to assert that public goods need regulation and other mechanism to see correct use. The matter is urgent and imporant and can't be left to good will and good intentions.

ps: One point I disagreed with in the talk was the assertion that CO2 emissions were the first environmental issue which required a global agreement to fix. This is not the case as there was previously a global pollution problem with Ozone destroying emissions. A global agreement was reached and has largely worked. CO2 emissions are a much more difficult problem, but the Montreal Protocol shows such problems are not insoluble.

See also:

• Books by and mentioning Sunita Narain

Development in India is Sustainable

Dr Rajendra K Pachauri, head of the Intergovernmental Panel on Climate Change in 2002 and now head of The Energy and Resources Institute (TERI), presented "Coping with Climate Change: Is Development in India and the World Sustainable?" at the ANU Australia South Asia Research Center in Canberra on 8 August 2007:

"Recent high rates of economic growth in India and other parts of the developing world, while reducing poverty and raising global economic growth, have put considerable stress on the environment even as it is already saddled with high emissions from the developed world. The 2007 K R Narayanan Oration by Dr Rajendra K. Pachauri will enquire into whether such growth patterns can be sustained into the future and what options are available for ensuring that the adverse impact of economic growth on the environment is manageable. ..."

The ANU VC introduced the talk, commenting it was the most crowded he had attended. The topic of development, India and climate change is timely. The talk was organized with the Australia-India Council (AIC).

Dr Pachauri said we had been paying lip service to sustainable development for 20 years, but the scientific evidence of the last few years had been a wake-up call. He said we needed to deal with externalities and vested interests in the euphoria of escalating consumptions in neglect of natural resource implications. 2007 is the centenary of the birth of Rachel Carson, environmental campaigner. The Club of Rome study "Limits to Growth" in 1972 was rightly criticized, for its static Malthusian view. Prudent societies would look for substitutes for limited resources. But the poorest will be worst hit in the process. Income inequality is increasing. Sustainable development relates to social conditions as well as environmental ones. We cause environmental damage at our peril as the earth is a closed system.

The Club of Rome produced an update in 2004. This made an adjustment for the difficulty of extraction of resources as they run out. This made the outlook even bleaker.

The Intergovernmental Panel on Climate Change (IPCC) has produced three reports. These have had an unprecedented impact. This partly because people have starting attributing extreme climate events to global warming. Al "Borne again" Gore has had a major effect; although he did not do so with such vigor when running for President. The IPCC report is unequivocal: most temperature increase in the second half of the 20th century is most likely due to human activity [sounds slightly equivocal to me]. The likely increase by the end of the century is 1.8 to 8 degrees.

The impacts of warming are detailed in the fourth IPCC report. South Asia is particularly vulnerable. Even when there is an average decrease in rainfall there are likely to be more floods. The mega deltas of Asia are particularly vulnerable to cyclones and storm surges. Melting glaciers in the Asian high mountains are the source of water in much of south asia and some of China. This will effect direct runoff and groundwater recharge. Australia's method of charging for water could help in India by applying economics to a scare resource.

Vector borne diseases will increase, due to an increase in water borne disease vectors. Yields of some crops, such as wheat, decrease with a temperature increase. Aquaculture will also be effected. Efforts are needed for drought tolerant crops for the poor, which could be an areas for cooperation between India and Australia. Two thirds of Indian agriculture is rain fed.

Rising prosperity in areas such as China can cause a decrease in global food stocks, due to more affluent eating meat fed on grain. Temperate regions will gain water while the tropics get less.

There is time available to stabilize the situation and it would be irrational not to act.

Gandhi said "It took Britain half the resources of the planet to achieve this prosperity. How many planets will a country like India require? "

The report "Green India 2047" showed an alarming picture. In a democracy you need perseverance to achieve changes. The poor will be disproportionately effected by a degraded environment as they use it more directly. We do not need to return to a preindustrial society to combat climate change and measures such as more efficient cars can be used, not give them up.

"Be the change you want to see in the world" Gandhi.

I asked Dr Pachauri if he saw India contributing sustainable high tech to the world, such as the Reva electric car (which unfortunately Australian governments do not permit). He replied that smart companies in all countries can contribute. He singled out General Electric and its CEO, Jeffrey R. Immelt, for positive comment, with its investments in environmental technology.

During Dr Pachauri's talk I thought about how IT professionals could help. Looking around the talk was held in a typical lecture theater. There were about 24 lights on, air conditioning, video projector and computer equipment. Also, like many in the room, I drove my car to the talk. So there are some savings to be made here and now. The room was reasonably efficient with florescent lights (more focused LED lights might be better). What might also help are multipurpose rooms which can be used more intensively. The typical lecture theater has fixed, tiered seating which makes it unsuitable for other purposes. A flat floor would make the room more flexible.

ps: I noticed the ANU's ace podcaster in attendance with his equipment. So there should be a podcast available shortly, as well as a web text. These will also help sustainability by allowing thousands of people to hear the talk without traveling and read it without paper.

Available from the 2007 K R Narayanan Oration by Dr Rajendra Pachauri, Director-General of The Energy and Resources Institute (TERI), India:

• Text (pdf)
• Slides (pdf)
• Audio (MP3)
• Video (Real Media)

Books available of the topic:

• Looking Back to Think Ahead: GREEN India 2047, P V Sridharan, R K Pachauri (1998)
• Other books by R K Pachauri.
• Limits to Growth: Original 1972 edition, 1974 Second edition, and Limits to Growth: The 30-Year Update.