The Independent Expert Group on Multilateral Development Bank (MDB) Reform met in Delhi over the weekend to discuss its second report to be submitted to the FM. Nirmala Sitharaman within 10 days. larry summers and NK ShinThe co-convenors of the panel told TOI about the recommendations. Mr. Summers also discussed the current state of the global economy and India’s prospects as a manufacturing hub. excerpt:
He spoke about the reform of MDB reports. Are you satisfied with the results so far?
Summers: I’m encouraged by the response. We are very grateful to the FM (Nirmala Sitharaman) for commissioning our report and the energy she put into advancing her recommendations contained in our report. India made the G20 meeting a great success. It will be remembered as an important global economic moment for PM Modi and for the country. we are on our way. But it’s a long road. While the sentiments of our report have been accepted, I am not sure that the extent of the dangers on the path to maintaining the status quo has been fully recognized. It’s a long way from good feelings to bold financial commitments and quick execution…quick and effective execution to make those financial commitments. So while we have made good progress so far, we still have a considerable distance to go in terms of MDB reform.
Do you think there will be a change in the stance of developed countries?
Singh: The UK has announced something, but the US has so far announced guarantees rather than recapitalization. Germany has shown some progress. Japan must be persuaded, but most of the G7 countries are moving. This recommendation has received a lot of attention.
The expert group is currently finalizing its second report. How will you address issues surrounding private finance and MDB reform?
Singh: In line with the mandates of the Delhi Declaration, the major theme of our second report will be on better, bolder and bigger MDBs. Better also means the process is simpler. For example, can you cut the time from ideation to payment in half? So can we go from, say, 24-26 months to 10 or 12 months?Similarly, we change the culture to go out and seek private capital. A stricter application of the cascading principle using aspects such as more private funding and guarantees could be considered. One of our big recommendations is a very robust country platform. At least 40-50% of the financing should come from country-specific platforms. Recapitalization is an inevitable part of the process.
What do you think about the threat of inflation affecting multiple countries?
Summers: The numbers in recent months have been pretty positive in terms of inflation and the strength of the U.S. economy. However, I am still very concerned about the prospect of a soft landing. My concern is that the Fed will have to strike a very difficult balance between a hard landing with rapidly evolving interest rate effects and the forces of inflation that remain prevalent. Although there is some disinflation in wages, we have not yet reached the point where we can be almost confident that inflation will fall to the 2% target. The Fed is therefore in a good position to remain focused on inflation, remain flexible, committed to achieving its goals, and closely monitor the data. But even if we are in the right place, there is no guarantee that we will have a soft landing.
What do you think about China’s economic development?
Summers: The next few years will not be easy in China. Some very basic indicators are negative for China. The desired level of capital flight from China appears to be very large. The fact that Chinese parents are having only half as many children as they did six years ago is a cause for concern. The overhang of a protracted financial crisis is usually quite long. We will be in an era where India will grow faster than China over a period of time. The main impact of China’s economic slowdown will be on China, but I don’t think it will necessarily have a big impact on growth in other parts of the world.
Will we see a shift in manufacturing from China? Can India absorb it?
Summers: It really depends on India’s choices. The level of concern about China represents a huge opportunity for India. At the moment, India is not yet the primary destination for people leaving China. People leaving China are likely to think of Vietnam first. If oriented toward the U.S. market, a significant amount of production is directed to Mexico. But if India can create a system that allows for rapid investment and allows for imports to come in in a relatively unrestricted manner, there is a huge opportunity for India. . For India to make the most of this opportunity, there needs to be further deregulation in the Indian economy. If India seeks to realize its potential with a strong global economy and truly bold policy actions, it could aim to grow its economy eightfold by mid-century. But this would require India to grow at 8% a year, which is a very ambitious goal.
What do you think about India’s emphasis on independence?
Summers:
Over the past 70 years, India has made too many mistakes in overemphasizing self-reliance. There are far more failures to resist globalization than failures to embrace it. I am not in a position to comment on the details of the program, but hearing that India is embracing global connectivity is more reassuring than hearing India talk about self-reliance. There is a long tradition of policies that induce stagnation, justified by arguments about self-reliance, and that is why I think India should continue down that path.
He spoke about the reform of MDB reports. Are you satisfied with the results so far?
Summers: I’m encouraged by the response. We are very grateful to the FM (Nirmala Sitharaman) for commissioning our report and the energy she put into advancing her recommendations contained in our report. India made the G20 meeting a great success. It will be remembered as an important global economic moment for PM Modi and for the country. we are on our way. But it’s a long road. While the sentiments of our report have been accepted, I am not sure that the extent of the dangers on the path to maintaining the status quo has been fully recognized. It’s a long way from good feelings to bold financial commitments and quick execution…quick and effective execution to make those financial commitments. So while we have made good progress so far, we still have a considerable distance to go in terms of MDB reform.
Do you think there will be a change in the stance of developed countries?
Singh: The UK has announced something, but the US has so far announced guarantees rather than recapitalization. Germany has shown some progress. Japan must be persuaded, but most of the G7 countries are moving. This recommendation has received a lot of attention.
The expert group is currently finalizing its second report. How will you address issues surrounding private finance and MDB reform?
Singh: In line with the mandates of the Delhi Declaration, the major theme of our second report will be on better, bolder and bigger MDBs. Better also means the process is simpler. For example, can you cut the time from ideation to payment in half? So can we go from, say, 24-26 months to 10 or 12 months?Similarly, we change the culture to go out and seek private capital. A stricter application of the cascading principle using aspects such as more private funding and guarantees could be considered. One of our big recommendations is a very robust country platform. At least 40-50% of the financing should come from country-specific platforms. Recapitalization is an inevitable part of the process.
What do you think about the threat of inflation affecting multiple countries?
Summers: The numbers in recent months have been pretty positive in terms of inflation and the strength of the U.S. economy. However, I am still very concerned about the prospect of a soft landing. My concern is that the Fed will have to strike a very difficult balance between a hard landing with rapidly evolving interest rate effects and the forces of inflation that remain prevalent. Although there is some disinflation in wages, we have not yet reached the point where we can be almost confident that inflation will fall to the 2% target. The Fed is therefore in a good position to remain focused on inflation, remain flexible, committed to achieving its goals, and closely monitor the data. But even if we are in the right place, there is no guarantee that we will have a soft landing.
What do you think about China’s economic development?
Summers: The next few years will not be easy in China. Some very basic indicators are negative for China. The desired level of capital flight from China appears to be very large. The fact that Chinese parents are having only half as many children as they did six years ago is a cause for concern. The overhang of a protracted financial crisis is usually quite long. We will be in an era where India will grow faster than China over a period of time. The main impact of China’s economic slowdown will be on China, but I don’t think it will necessarily have a big impact on growth in other parts of the world.
Will we see a shift in manufacturing from China? Can India absorb it?
Summers: It really depends on India’s choices. The level of concern about China represents a huge opportunity for India. At the moment, India is not yet the primary destination for people leaving China. People leaving China are likely to think of Vietnam first. If oriented toward the U.S. market, a significant amount of production is directed to Mexico. But if India can create a system that allows for rapid investment and allows for imports to come in in a relatively unrestricted manner, there is a huge opportunity for India. . For India to make the most of this opportunity, there needs to be further deregulation in the Indian economy. If India seeks to realize its potential with a strong global economy and truly bold policy actions, it could aim to grow its economy eightfold by mid-century. But this would require India to grow at 8% a year, which is a very ambitious goal.
What do you think about India’s emphasis on independence?
Summers:
Over the past 70 years, India has made too many mistakes in overemphasizing self-reliance. There are far more failures to resist globalization than failures to embrace it. I am not in a position to comment on the details of the program, but hearing that India is embracing global connectivity is more reassuring than hearing India talk about self-reliance. There is a long tradition of policies that induce stagnation, justified by arguments about self-reliance, and that is why I think India should continue down that path.
