Our Bureau

New Delhi: The foremost priority for every economy is to get its house in order—this was the consensus that emerged at a discussion featur-ing Nobel laureate and Princeton don tur ned columnist Paul Krugman, star development econo-mist and Ford Foundation interna-tional professor of economics at MIT Abhijit Banerjee and the gov-ernment of India’s chief economic advisor Arvind Subramanian.

The star-studded panel covered a great deal of ground at the Economic Times Global Business Summit on Saturday as they en-gaged with each other on the theme of ‘American Revival: What it means for the world economy and India.’

While trade in goods is universally accepted as being beneficial to one and all, trade in services creates what Subramanian called a belea-guered middle class in the rich countries, putting up political bar-riers to expanding this exchange, he said, initiating the discussion that will set the agenda ahead of President Barack Obama’s visit later this month.

This middle class “is kind of ex-pressing reservations about open-ness and the commitment to open-ness,” said Subramanian, warning about the implication of such pro-tectionism for India.

Krugman said there was a valid reason for what Subramanian called “intellectual climate change” in the US, referring to reservations about globalization.

“I would say obviously protection-ism is not the route but to say that we do have problems which are in some ways exacerbated by globali-sation and that we need to accept that fact is a reasonable thing,” Krugman said.

The panel agreed that unregulated capital flows could be a real danger, suggesting better regulation while

admitting that financial sector re-form that began after the 2008 crisis has not gone very far. The panel was unanimous in recommending for-eign direct investment (FDI) to countries that needed investments and those that had a surplus.

“I still think one thing we really need to do is creating a climate for FDI,” Banerjee said, adding that “FDI is typically useful--everything else is questionable,” a point en-dorsed by Krugman.

“FDI, it does not have that track record of causing problems, and conversely if you do not want to con-tribute to the problems of your sur-plus country, you really should be promoting direct investments rath-er than parking your money in some place,” the Nobel laureate added.

The most sensible way to deploy savings is in infrastructure, of

which there is a serious deficit not just in countries like India but also in the US.

Krugman said there was little chance of another bubble building up right now and disagreed with the idea that low US interest rates are because of quantitative easing.

“US interest rates are low funda-mentally. Long rates are low be-cause people expect short rates to be low for a very long time and peo-ple expect short rates to be low for a very long time because they think that the expansion is fundamental-ly weak, that there is a drag,” he said.

But Banerjee does not think all this cheap money sloshing around in the world’s financial networks will help build Indian infrastruc-ture until the country fixes its banking system and bankrupt in-

frastructure companies that are undercapitalised.

“I think the bad news is that the money, even if people came to us with tonnes of money to lend, I do not think we are in a position to bor-row,” the MIT professor said, add-ing that the country’s financial sec-tor was broken like never before.

“A very large number of infra-

structure and power companies that are on paper probably still not bankrupt but I think in effect bank-rupt and that is our fundamental (problem),” he said. “Unless we solve that problem, all the capital sloshing around is not going to go anywhere.”

Krugman believes governments needlessly hold themselves back from borrowing money at cheap rates to spend on infrastructure, of-fering support to the recent idea in India that the government can step up public investment by relaxing fiscal deficit targets.

In his mid-year review of the economy, Subramanian had said the private sector was not in a posi-tion to invest and the government needed to step in.

“I do feel that we cannot afford to be very conservative. We are in

deep trouble because of this huge amount of bailout that will be need-ed and we can half do it but then the banking sector would not provide finances, it does not provide fi-nance, or growth will be slow and we do need infrastructure,” Banerjee said.

Krugman said big countries bor-rowing in their own currencies have not really bothered about rat-ings agencies.

There is a problem with debt for governments only when the debt is owed to foreigners, said Krugman, adding that foreign capital cannot really be the saviour of any econo-my. There is no alternative apart from fiscal expansion even at the threat of a ratings downgrade be-cause if growth stagnates for too long, that too could be cause for a downgrade.

Our Bureau

New Delhi: The Economic Times Global Business Summit, Day 2, January 17 - delegates were talking about Nassim Nicholas Taleb’s tweets on Narendra Modi, who stole the show on Day 1 of ET GBS.

Taleb’s tweets – first, “I’d rather open a thousand schools than a sin-gle university”, Indian PM @naren-dramodi very impressive and, sec-ond, PM Modi mentioned that ‘small is beautiful’; small is mostly less fragile than large – were unu-sual in that it’s rare for a disruptive-ly smart theoretician to find com-mon ground with a head of government.

But the 2-day ET GBS turned out to be that kind of a forum – full of unex-pected delights and char ms. Saturday’s bitingly cold, ferociously foggy Delhi winter morning wasn’t the best weather for anyone to travel to a hotel, to either give or listen to spe-cial addresses. They all came, though.

Railway Minister Suresh Prabhu, whose staff was smilingly com-plaining that their minister works all but 5 hours a day, arrived right on time, began by saying ET has been a change agent for economic dyna-mism for 20 years and ended by re-fusing to give too many details of his future plans – “I want a full page in ET after the rail budget”, he said, “I won’t get it if I give details now”.

The other two ministers were equally engaging. Ravi Shankar Prasad was seen chatting away with Paul Krugman and Piyush Goyal seemed, as he almost always does, completely at ease. All ministers po-litely fended off eager businessmen who had pitches to make.

But even businessmen with order books on their mind were transport-ed to a more interesting world by Taleb. You knew within 10-minutes

of his keynote address on ET GBS Day 2, why he’s so famous, why his books are so mind-bendingly good and why he’s so sought after. A dis-ruptive thinker who’s also a gifted raconteur, Taleb knows exactly when to show a slide and when to pause for that ‘Oh!’ moment to happen.

He alone would have kept Day 2 of ET GBS going, indeed he said he’s perfectly happy to continue for hours, but there was so much more on offer. Not the least being a star-studded panel – Krugman, Chief Economic Advisor Arvind Subramaniam and

MIT’s Abhijit Banerjee.Day 2 ending with a discussion of

that quality was the perfect bookend for an event that showcased so much political, business and academic tal-ent. Let us also add, Paul Krugman went off to see Humayun’s tomb with Coca-Cola’s Venkatesh Kini and Nassim Nicholas Taleb took to Facebook to arrange a meet-up over coffee with some fans in the city.

Taleb had said there’s so much dis-order in Delhi’s traffic that India seems a fertile ground for radical thinking. Here’s hoping he’s right.

ET Global Business Summit 2015

Our PM wants an e-literate and e-enabled population, an idea that resonates very well, particularly with the youth

KIRAN MAZUMDAR-SHAWChairperson, Biocon

Haven’t seen, heard or met a national leader like

our Prime Minister! A true inspiration

SHIVINDER MOHAN SINGHExecutive Vice-chairman, Fortis Healthcare

1. BCG India MD Arindam Bhattacharya and Venkatesh Kini, president at Coca-Cola India and South West Asia2. Viom Network’s Syed Safawi and Videocon Telecom’s Arvind Bali3. Micromax’s Sanjay Kapoor and Vineet Taneja4. Naveen Jindal and Rajyavardhan Rathore5. Raian Karanjiwala and Uma Shankar Bhartia6. EY’s Rajeev Memani

The Ties Have It The two-day event was full of invigorating conversations

2

31

Taleb’s address transported everyone to a more interesting world

Forum Kept Everyone Engaged & the Cold Out

ON DAY TWO

FDI Fine, All Else QuestionableKrugman goes with panel view in recommending Foreign Direct Investment, believes you really should be promoting direct investments rather than borrowing

‘AMERICAN REVIVAL: WHAT IT MEANS FOR THE WORLD ECONOMY AND INDIA’

654

Star-Studded Panel: Paul Krugman and Abhijit Banerjee say while trade in goods is universally accepted as being beneficial to all, trade in services creates a beleaguered middle class in rich countries

ARVIND SUBRAMANIAN INITIATED THE DISCUSSION THAT WILL SET THE AGENDA AHEAD OF OBAMA’S VISIT

FOOD FOR THOUGHT: (Top) Paul Krugman helps himself; Max’s top team— Mohit Talwar, Rahul Khosla and Rajit Mehta

PAUL KRUGMAN

Nobel laureate, Princeton Don

turned Columnist

ABHIJIT BANERJEE

Ford Foundation International Professor of

Economics at MIT

The country is looking forward with bated breath to

more and more of govt’s plans to be implemented

SUNIL KANT MUNJALJoint MD, Hero MotoCorp

It seems to me that to be worried about the next bubble is very premature. The fact of the matter is we are still living in the shadow of the past crisis

International capital flows have not been the route to prosperity, the route to success for anybody, basically, ever

Our financial sector, our banking sector is broken like nobody’s business, more broken than it has ever been

I do not think that one should start with the idea that regulation had nothing to do with it (the crisis). This was engineered by a particular regulatory stance in the US which was…irresponsible, putting it very mildly

10�THE ECONOMIC TIMES | BENGALURU | MONDAY | 19 JANUARY 2015