Former RBI Governor Raghuram Rajan has stressed the need to “revitalise the world economy” by dissecting various prevalent or growing problems across the world today.
In a report published in Financial Times, Mr Rajan foresaw that a “perfect economic storm engulfs industrial countries”.
While the claim may seem too harsh to be true, Mr Rajan shares facts for us to see. He starts by saying how the COVID-19 pandemic skewed the demand favouring bicycles and away from gym memberships. “Then rolling lockdowns across the world disrupted production of those bicycles,” he says.
The former RBI Governor shared the report on his LinkedIn profile.
He says workers became harder to find because many people retired, and immigration slowed down.
Mr Rajan also focuses on the impact that the Ukraine war and the lockdowns in China had across the world. According to him, the war “fuels food and energy inflation,” and the lockdowns promote “goods price inflation”.
He says matters are worse in developing countries than in industrial nations. In these countries, middle-class households are already moving towards poverty. Inflation is driving citizens to reduce consumption “below subsistence levels”. Governments are also caving under the burden of past borrowings.
“On current trends, the future looks challenging,” says Mr Rajan, adding, “Sustained growth depends on innovations that allow us to produce more at a lower cost.”
Working from home helps reduce commutation costs, but delivery services cannot boost further unless local licensing requirements loosen some restrictions.
Deglobalisation has led to the “fall in global trade and investment”. Population ageing, military spending without big investment and climate changes will be big impediments on the way.
At best, Mr Rajan says, central banks could raise rates to indicate controllable inflation but not so high that it will cause the economy to crater. “At worst, we will have a recession augmented by financial stress,” the report reads.
Revitalising growth policies is important, and so is ending the ongoing war.
“The easiest solution economically, and the hardest politically, is to reverse the trend to deglobalisation,” Mr Rajan says.
The former RBI chief suggests finding ways to enhance global trade in services and diversify elements in supply chains for this reason.
Climate change is a great threat to the world economy. Mr Rajan also suggests that the “world’s major economic powers need to come together” to take responsibility for financing “climate responses in the developing world.” Bold policy action is what he rooted for.