New Delhi, March 30: India has crucially placed the domestic market as the driver of its economic development, which strategy is also a major prescription for sustainable recovery of the global economy post the financial crisis that began in 2008.
“India is a leading example of a country which has been at the forefront in identifying the function of the domestic market as critical to sustainable growth,” Mukhisa Kituyi, secretary general of the United Nations Conference on Trade and Development (UNCTAD), told IANS in an interview.
“India’s public investment and wage policies are structured to enhance the growth of the country’s middle class, which is one of the main prescriptions for the sustainable recovery of the global economy, particularly the global South,” said the chief of UNCTAD, which was established in 1964 as a forum for developing countries to discuss issues related to their economic development.
In the 1970s and 1980s, UNCTAD was closely associated with the idea of a New International Economic Order (NIEO), envisaged to correct imbalances in the interests of the developing South. The organisation’s goals are to maximize the trade, investment and development opportunities of developing countries and assist them integrate into the world economy on an equitable basis.
Kituyi, who is a Kenyan, said that on the score of developing the domestic market, India had fared better than China.
“Higher wages are not just a cost, they are also investments in an expanded consumer. Domestic consumption accounts for about 70 percent of India’s GDP as compared to China, where it is 50 percent”, Kituyi said.
The Congress manifesto for the general elections released this week speaks of the creation of a new middle class in the country, which comprises 70 percent of the population.
According to UNCTAD’s latest report, foreign direct investment flows into India grew 17 percent in 2013 to $28 billion despite unexpected capital outflows in the middle of the year. It also says FDI across the world rose to levels not seen since the start of the global economic crisis in 2008.
Global FDI increased by 11 percent in 2013 to an estimated $1.46 trillion, with the lion’s share going to developing countries, while India ranked 16th among the top 20 global economies receiving the most FDI.
Explaining how the global integraion of financial markets makes emerging economies like the BRICS and other countries vulnerable, Kituyi said: “When the US Federal Reserve lowered interest rates, the so-called tapering programme, cheaper capital managed to transform itself into FDI and financial capital abroad benefitting emerging economies, including India.
“When tapering was removed, credit became more expensive and the main consequence in terms of vulnerability has been reflected in the emerging economies, Brazil, India, South Africa,” he added.
The UNCTAD secretary general pointed out that though there were limits to what India alone could do to turn the tide of the global crisis, it had a lot to offer, while the South together had the ability to make the interventions to anchor its interests.
“India can offer, like it has often offered, the intellectual and economic leadership to deepening the South value chain. But value chains in the South, as the recent economic crisis has shown, cannot be complete unless there is a sufficient domestic market of the South,” Kituyi said.
“We can complete the South value chain if we sufficiently invest in the development of the middle class in the global South,” the secretary general signed off.
(Biswajit Choudhury can be reached at email@example.com)