You talked about the reform in the report on MDBs. Are you satisfied with the result so far?
Summers: I’m encouraged by the response. I am very grateful to the FM (Nirmala Sitharaman) for commissioning our report and for the energy she has put into implementing the suggestions in our report. India had a very successful G20 meeting. It will go down in history as an important global economic moment for Prime Minister Modi, and for the country. We’re hitting the road. But it’s a long road. While the sentiments in our report were embraced, I am not sure that the extent of the danger in the path of the status quo has been fully recognised. There is still a long way to go from good feelings to bold financial commitments to rapid implementation… rapid and effective implementation of delivering on those financial commitments. So I would say so far so far, but there is still a lot of mileage to be covered on MDB reform.
Do you see a change in the attitude of the developed world?
Singh: Britain has announced something, and the US has announced something about the guarantees, and not about the recapitalization so far. Germany has indicated some forward movement. Most G7 countries are on the move, although we have to convince Japan of this. There is much more control over the recommendations.
The expert group is finalizing its second report. How will you address the issues surrounding private financing and MDB reforms?
Singh: In line with the mandate of the Delhi Declaration, the big story of our second report will be about better, stronger and bigger MDBs. Better also means simpler processes. For example, can we halve the time between concept and payment? So, let’s say, from 24-26 months, can we take it to 10 or 12 months? In the same way, we are changing the culture of seeking private capital. We can look at the rigorous application of the cascade principle, using more private funds and other aspects such as guarantees. One of our big recommendations is a very robust country platform… at least 40-50% of lending should come from the country platform. Recapitalization is an inevitable part of the process.
How do you see the threat of inflation in different countries?
Summer: The figures of the past few months are quite favorable for inflation and the strength of the US economy. But I’m still very concerned about the prospects for a soft landing. My concern is that the Fed faces a very difficult balancing act between a harder landing as the impact of interest rates accelerates, and still prevailing inflationary forces. While there has been some disinflation in wages, we have not yet reached a point where we can have any confidence that inflation will fall to the 2% target. So the Fed is in the right place to focus heavily on inflation, maintain its flexibility, remain committed to achieving its target, and keep a close eye on the numbers. But even if we are in the right place, there is no guarantee that we will achieve a soft landing.
How do you view developments in China… the slowing economy?
Summers: The next few years are unlikely to be easy in China. A number of fairly fundamental indicators point negatively in China. The desired level of capital flight from China appears to be very high. The fact that Chinese parents are having only half as many children as six years ago is a source of concern. The consequences of long-term financial crises are usually quite long-lasting. We will enter an era where India will grow faster than China over a longer period of time. The main consequences of the Chinese slowdown will be for China… I don’t expect this to necessarily have a major impact on growth in the rest of the world.
Do you see a shift in production from China? Will India be able to absorb that?
Summers: That largely depends on the choices India makes. The level of concern about China points to a very substantial opportunity for India. At the moment, India is not yet the main destination for people leaving China. People leaving China are more likely to think of Vietnam first. If they target the US market, there is substantial production moving towards Mexico. But there is a very big opportunity here for India, if it is able to create systems that allow investments to happen quickly, and if it is able to take into account imported inputs in a relatively unrestricted way. For India to maximize this opportunity, further easing of restrictions in the Indian economy will be necessary. If India wants to fulfill its potential, with a strong global economy and truly bold policy action, it could aim to grow its economy eightfold by mid-century. But for that, India would have to grow at 8% per year, which is a very ambitious target.
What is your view on the focus on self-reliance in India?
Over the past seventy years, India has made too many mistakes by overemphasizing self-reliance. It has made too many mistakes in resisting globalization than in embracing globalization. I am not in a position to comment on the details of the program, but when I hear India embracing global connectivity, I feel more at ease than when I hear India talking about self-reliance. There is a long tradition of policies that cause stagnation, justified by arguments about self-reliance, which makes me think that India should exercise restraint on that front.