COMMENTARY
INTERVIEWS
SPECIALS
CHAT
ARCHIVES

India hurtling toward crisis, warns economist

Noted economist P R Brahmananda has warned that India may have to face severe hardships in case of global depression, saying the Indian system has become very inflexible from a monetary and fiscal angle.

''We are blindly marching forward to a crisis whose dimensions we are completely unaware of,'' he said, pointing out that the organised as well as the unorganised sectors will be affected. He was delivering the Bank of India Foundation Day lecture in Bombay today. He, however, refrained from speaking on suggestive measures.

Surveying the 20th century developments in the international economic scenario, the eminent economist said, ''From the first decade of gold exchange standard, we have travelled through the sterling exchange standard, the gold-dollar exchange standard, the dollar exchange standard and arrived at the dollar-euro standard (the Doro or the Euro standard or preferably Eurodoll standard).

''It seems the yen is in difficulties and the yuan or no other Asian currencies are strong enough, the US dollar and the Euro are going to be major reserve and key currencies,'' he said, but added, ''together they must maintain a stable ratio like gold-silver ratio prior to 1870.''

The money base for the world economy will be the aggregate of reserve for these two currencies with different countries and their joint rate of growth will determine the growth of world money supply, he predicted.

Brahmananda said that free flow of services and enforcement of patent laws are being negotiated and the proposal for free multilateral investment flows are under debate. With the floating rates and establishment of currency convertibilities, the traditional role of the International Monetary Fund was getting eroded.

Similarly, with larger capital flows across the globe and towards developing countries, the role of World Bank and its sister agencies was also getting whittled down, he said.

The second half witnessed the collapse of South-East Asian miracle, probably temporarily. In the competition between the US dollar and Japanese yen, the latter is losing. The crisis in South and South-East Asia and in Korea was having its repercussions on Japan. Currencies were being devalued heavily, he said.

China was trying to ward off devaluation and even Russia was getting into severe economic crisis with the prospect of massive devaluation of the rouble. The world economy is slowing down consequent to inevitable slowdown of the growth rates of western world, he added.

UNI