Frontier Issues on the Global Agenda Emerging Economy Perspective
(Commemorative Oration by Dr. Duvvuri Subbarao, Governor, Reserve Bank of India, on the occasion of the 60th anniversary celebrations of Central Bank of Sri Lanka, in Colombo on March 29, 2011)
First of all, my thanks to the Central Bank of Sri Lanka (CBSL) and to Governor Cabraal for inviting me to deliver this commemorative oration as part of CBSL’s Diamond Jubilee celebrations. I gather that a number of distinguished people have given orations as part of this anniversary series. I am indeed honoured to add my name to that very select list. My compliments to the management and staff of CBSL on this happy and historic occasion.
2. As institutions, central banks go back several centuries. The first central bank, the Riksbank in Sweden, was established in 1668, nearly 350 years ago. The Bank of England came shortly thereafter in 1694. By the turn of the century in 1900, there were only 18 central banks. Today, there are around 180 central banks, a tenfold increase in the last one hundred years.
3. In relative terms, both the Reserve Bank of India (RBI) and the Central Bank of Sri Lanka (CBSL) are young institutions. RBI was established in 1935, and we celebrated our Platinum Jubilee last year. Apart from relative youth, there are several other similarities between our two institutions. Both of us have a wider mandate than is typical of central banks. In addition to maintaining price stability and macroeconomic stability, we both have responsibilities for currency management, debt management and external sector management. More importantly, we also have an obligation to calibrate our policies to promote the socio-economic development of our peoples. And in the wake of the crisis, we face the common challenge of managing our policies, particularly preserving financial stability, in the face of globalization.
4. India and Sri Lanka are not just geographic neighbours; we have deep social, cultural and economic links that go back several centuries. And as we navigate an increasingly complex world, we face a number of similar opportunities and challenges. We are both fast growing emerging economies; we aspire to raise our growth rates to double digits, and want to efficiently translate that rapid growth into poverty reduction. We also have to manage our ‘inclusive growth’ strategies in the face of globalization.
5. Experience shows that globalization offers incredible opportunities but also poses immense challenges. If the years before the global financial crisis - the period of the so called ‘Great Moderation’ - demonstrated the benefits of globalization, the devastating toll of the crisis showed its costs. As emerging market economies (EMEs), we cannot withdraw from globalization. That is neither feasible nor advisable. We have to confront globalization head on, but manage it in such a way that we exploit the opportunities and mitigate its costs. Surely, we have our concerns about the forces of globalization and how they might impact us. Many of these issues are on the global agenda that the G-20 is deliberating upon.
G - 20
6. I attended a meeting of the G-20 Finance Ministers and Central Bank Governors in Paris in mid-February 2011. Apart from the specific issues on the agenda, what impresses me about the G-20 forum is its group dynamics driven by two underlying convictions. First, that global problems cannot be solved without global cooperation and that uncoordinated responses will lead to worse outcomes for everyone; and second, that solutions to global problems are sustainable only if they reflect also the EME perspective. I thought the way I can best add value to this series of orations is to focus my remarks on the EME perspective on issues on the global agenda.
Emerging Market Economies in the Global Context
7. Fifty years from now, when historians look for the defining features of the first decade of the 21st century, they will probably mark the rise of world-wide terrorism, the deepening of the internet culture and the devastating global financial crisis. Whether the emergence of EMEs as a group will rank pari passu with those others will depend on what EMEs achieved in the last decade, but importantly also on how they consolidate those gains in this decade and beyond.
8. Before I go on to specific issues, let me make a brief comment on EMEs in the global context. The shift in the global balance of power in favour of EMEs is by now a familiar story. Some broad trends will show what a remarkable shift this has been. Setting GDP at 100 in the base year of 2000, the following chart shows the aggregate growth in the decade 2000-10 (Chart - 1). Against the aggregate growth of 17 per cent of advanced economies, emerging market and developing countries (EMDCs) grew by 82 percent and BRICs (Brazil, Russia, India, China) by a whopping 127 per cent.
9. When we look at shares in global GDP, the growing dynamism of EMEs becomes even more persuasive. The share of advanced economies in the global GDP dropped from 80 per cent in 2000 to 67 per cent in 2010 with a mirror increase in the share of EMDCs (Chart - 2). Quite expectedly the share of BRICs increased more impressively from 8 per cent to 17 percent.
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