COMMENTARY
INTERVIEWS
SPECIALS
CHAT
ARCHIVES

Shankar Acharya marks out debt lessons for India from east Asian meltdown

Dr Shankar N Acharya, chief economic adviser to the India's finance minister, has rejected as "nonsense" the view that the recent east asian financial crisis did not hold portents for India.

The boom followed by the bust in the tiger economy provided lessons on how not to make a mess of the underlying issues in macro-economic management, he said, while speaking on Thursday at an international seminar on "External Debt Management: Issues, Lessons and Preventive Measures" in Thiruvananthapuram.

India had managed to steer itself clear of the contagion effect largely because of a sound external debt management policy being followed in the post-1991 phase, he added.

Acharya said the success on the external debt front was due to the growth in exports and remittances during the period, increased recourse to non-debt creating credit inflow, especially stringent external commercial borrowings regime with particular reference to maturity and tenure and stress on control on the short-term component of the debt.

Acharya said the recent Asian financial crisis had both positive and negative lessons for countries like India.

The success of the high performing east Asian economies were identifiable with sound policies, including emphasis on human resources development, prudent public finance characterised by low fiscal deficit, promotion of agricultural development, high savings rate and successful infrastructure development. These positive factors were still relevant to countries like India.

However, the crisis now gripping these economies also had some lessons. For instance, there was a need for close monitoring and control of external debt with special attention to short term debts. The east Asian economies had a huge short term debts, besides the need to keep the current account deficit at manageable limits and cautious approach towards capital account convertibility.

In this context, he pointed out that east Asian economies had over the years registered, on an average, per capita income growth of six to seven per cent a year as against India's two to three per cent. The economies of east Asian countries were in a crisis in spite of such a huge per capita income growth.

Acharya said during the post-1991 phase, India's policy had been, on the board, quite successful if one looked at the obvious indicators.

Acharya said the debt service ratio had fallen from 35 per cent in 1991 to 19 per cent during 1997-98 and the total debt to gross domestic product fell to 26 per cent from 41 per cent during this period.

The short-term debt had also substantially decreased from 10.2 per cent in 1991 to 5.3 during 1997-98 and the short-term debt to foreign exchange reserve to 17 per cent from 146 per cent during this period.

The three-day seminar, organised jointly by the Reserve Bank of India, ministry of finance, government of India and the World Bank, is being held at Kovalam, about 20 km from the state capital.

UNI

Report on Dr Tarun Das's paper

Euro implications for debt and finance still beyond experts' ken

The Dr Shankar Acharya interview

Business news