Following is the full text of speech of Shri Kamal Nath, Union Minister for Commerce and Industry’, on “Reviving Global Economic Growth” at World Economic Forum in Davos today:
“The global economic crisis started impacting India from the beginning of last year. Rising crude prices, along with the global food grain shortage, caused a spillover into the real economy. As inflation rose, India was forced to repeatedly tighten credit and money supply.
By the middle of September 2008, it became apparent that the global credit crisis had deepened and key financial institutions were in need of help. Governments and central banks across the world started intervening to cut interest rates, inject liquidity and recapitalize weakening banks and financial institutions.
The scale of intervention — through the various bailouts and other fiscal and monetary measures — has been unparalleled in the history of the global financial system.
Of course, the priority now is to ensure financial stability and lessen turmoil in the capital and money markets. But once a certain amount of stability in financial markets is achieved, there are bound to be long-lasting changes in the way financial, commodity and consumer markets are regulated.
In the new framework, there will be calls for much greater transparency required from banks and other financial institutions, restrictions on the extent of leverage, restrictions on the use of complex financial products and a mandate to build reserves when times are good.
The issues of government and corporate accountability have taken centre stage once again. There can be no other way forward but for increasing the ethical standards of corporate and capitalist behavior. It is important to start an international movement for identifying a core set of ethical values that will be expected to become the operating norm for capitalism as we go forward.
Another question facing us today, specially after the financial crisis, is that often the national regulatory process is found wanting and this can result in collateral damage far beyond the geographic borders of the country where the errant firms/corporations are based and under whose national regulatory jurisdiction they operate. With corporates becoming truly global and without borders, should we not try and move towards a global regulatory mechanism? This is not a call for creating a ‘supra international regulator’ which some may find desirable, but for designing a system of regulatory norms that are then followed in all national jurisdictions, or it could, for example, alert national regulators of risks building in the financial system, have influence over the alignment of exchange rates or oversee global financial institutions whose activities spill across borders.
For such an institution to have credibility and political legitimacy, it must have representation not only from advanced economies but also from emerging ones, which have so far not had a fair say in the Bretton Woods institutions.
The G-20 is the best forum to discuss the setting up of such a body. The G-20 has already shown that it is a voice to reckon with. It has issued a joint statement demanding a bigger role in shaping the new global financial architecture. It has called for wholesale reform of global financial institutions, affording them stronger representation within the World Bank and the IMF.
Already, the BRIC nations (Brazil, Russia, India and China) have secured a greater voice for emerging economies at the recent G-20 summit in Washington. The final communiqué stated that emerging and developing economies “should have a greater voice and representation” and called for an urgent expansion of the Financial Stability Forum (FSF) to allow “a broader membership of emerging economies”. Finally at this critical juncture in the global economic history we must guard against protectionism. Trade has grown spectacularly over the last two decades bringing prosperity to the world. History is witness that whenever countries try to prop up protectionism, it intensifies depression. The Great Depression of 1930’s is a case in point; economists think that America’s Smoot – Hawley tariff, which increased nearly 900 import duties is regarded as one of the major contributors of the Great Depression. The world needs to ensure that protectionist tendencies are avoided.”
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