Oh boy, this post sure brings back memories--not all of them I'm particularly fond of, though. In 1992, Ross Perot spoke of a giant sucking sound as American jobs headed to Mexico. While I didn't really care to hear that, in 2010 I certainly do hear Barack Obama and his Treasury Secretary Tim Geithner making a giant sucking up sound to India. (Alike with Mexico all those years ago, the fear among many Americans is that India will suck away jobs this time around.) It's odd how all this India lovey-dovey stuff is coming from a guy who once disparagingly wrote of his erstwhile opponent for the Democratic presidential nomination Hillary Clinton as representing (D-Punjab). I guess some of us have longer memories.However, let's focus on his deputy in this post, Tim 'Strong Dollar' [yeah, right] Geithner. With three of the other BRICs ganging up on America over its money for nothing policies, the US is understandably keen on keeping India friendly. Accordingly, Geithner has penned a little-noticed editorial in the Hindustan Times heaping praise on India. In particular, he lauds its efforts on the external imbalances front. Which, of course, hearkens to his recent pleas to G-20 members to implement 4% limits on current account surpluses or deficits to deal with global economic imbalances. The curious thing for anyone familiar with the world economy is that India continually runs an external deficit of around -2%. Reading between the lines, we infer two things. First, in an ideal world, China would look more like India to the Americans. Second, "balanced growth" is more like "running a deficit" to US benefit if India is cited as an exemplar. Anyway, here's the key snippet from Geithner:
For growth to be sustainable, we must also work together to change its overall global pattern. Before the crisis, too many nations oriented their economies toward producing for export rather than consuming at home, counting on a few deficit nations to import many more goods and services than they sold abroad. The result was a global economy afflicted by an unstable array of external imbalances, both deficits and surpluses.I have qualms with Geithner's characterizations of India. Certainly, inequality is still unfortunately widespread there even if its growth has been vigorous in recent years. Also, there's something to be said about its infrastructure de velopment when more folks have access to cell phones than toilets. While the US would certainly welcome a world where more of its trading partners had the external balance of India--who wouldn't?--the pointed message of wishing China looked more like India may not necessarily be developmentally superior, especially in infrastructure terms.
Together, we must build a framework for growth that prevents the re-emergence of such imbalances, maintaining external accounts at sustainable levels over time. Doing so will require contributions from every corner of the global economy. Surplus countries will have to boost internal demand through structural reforms, while deficit nations will need to increase their savings. Key emerging economies will also need to move toward market-determined exchange rates in line with economic fundamentals.
India is meeting this challenge, helping to demonstrate the dynamism that can accompany domestic demand-led growth combined with significant exchange-rate flexibility. India is succeeding in fostering greater domestic demand in part by directing economic policies and incentives toward the bottom of the income pyramid. In the coming years, India will also continue to make substantial investments in public infrastructure that will help to drive future growth. In short, India's focus on "inclusive growth", through targeted fiscal spending and investment, is contributing to greater support of Indian households and higher employment.
