India may be less impacted adversely at present but it faces a 'new normal', like other nations with volatile financial markets, unstable currencies and likely further China steps, as warranted, to avert a hard landing. It cannot be seen as a 'transient' factor, as assumed here, and in fact this was at the centre of G-20 concerns at Ankara (Sep.4 and 5).

Prime Minister Narendra Modi, in a statesman-like approach, urged corporate leaders at his meeting on Tuesday to take risks, supposedly inherent in their DNA, invest and create jobs, his priority, as public investment was also being stepped up. He wanted them to take advantage of low world commodity prices and utilise built-up capacities and see what opportunity we could make from China's slowdown.

Mr Modi must all be too aware of a spreading public disillusionment with his Government's unfulfilled electoral promises, especially on employment. What the PM and other Government leaders heard from business leaders in turn was a chorus for RBI rate cut to reduce the cost of capital, as if a further drop in repo rate would re-ignite their 'animal spirits'.

They have posed at the same time sterner demands on North Block to the chagrin of Finance Minister Mr Arun Jaitley and the assembled policy-making entourage. These are of course stalled projects, unfinished work on making business-doing easier, infrastructural bottlenecks, especially power and high cost of inputs (to which industry itself had contributed by its pricing power at the height of inflation).

The corporates also brought in the stresses in the banking system, with rising NPAs and their capital needs for financing credit for growth, the GST reform and early bringing in of a tightened bankruptcy code. Industrialists, according to Finance Minister Mr Arun Jaitley, also wanted some form of protection from dumping of cheaper steel and aluminium on India's market by raising duties.

There are fears of such dumping in the wake of China's devaluation of its currency on August 11/12. Meanwhile, GST (Goods and Services Tax) itself, designed to create a common market for the country, is bottled up in Parliament with little backing in Rajya Sabha. The rates of tax and commodity exclusions are yet to be firmed up.

No matter these unsettled issues, the claims are that GST would push up GDP growth, lower costs of production and yield more revenues for Government. It also goes with unabashed claims that consumers would get goods cheaper, whatever the rates of taxation. For the Government, a quick adoption of GST would become a major reform of its accomplishment. Expert studies differ on the cited growth estimates and consumer price impact of GST.

Mr Jaitley said later that corporates were told that Government would do everything to roll out GST soon while the bankruptcy code, under finalisation, would also be expedited. At the same time, business was urged to revive investments, given the rising capital spending by Government on agriculture and irrigation, especially in the context of current year's monsoon deficiencies, and on infrastructure.

On the more vociferous issue of rate cut, Mr Jaitley struck to protocol saying it was within the domain of the Reserve Bank of India. Governor Dr Raghuram Rajan, one of the invitees to the gathering, kept a silent watch. As it is, the next bi-monthly monetary policy review is due on September 29 and Dr Rajan is already on record that while RBI remained in monetary easing mode, any further rate cut would be data dependant.

Additionally, he would also have to await the outcome of the US Federal Reserve's meeting on September 17. Judging by the latest positive trends in US economy which recorded 3.7 per cent growth in the second quarter and unemployment rate coming down to 5.1 per cent, there is greater expectation of the first post-crisis hike in the Federal Funds Rate, currently at near zero level, coming into effect in September/October.

Such a hike could as well lead to capital outflows from emerging market economies in search of higher yields. The Fed has been communicating that it is committed to a gradual process in raising rates going forward, based on economic information, especially the level of inflation which has remained well below its target of 2 per cent.

Dr Rajan, who attended the G-20 meeting of Finance Ministers, shared his view with other central bankers that advanced economies should begin to unwind their prolonged monetary accommodation policies, especially where sustained growth has begun to emerge, and this may be applicable to USA.

The Untied States itself takes a mixed view as to how far the current slowdown in China, especially its exports, would be beneficial to the world’s largest economy, with its considerably strengthened dollar. At the G-20 meeting, US Treasury Secretary Mr Jacob Lew conveyed to China's finance minister concerns about Beijing's sudden exchange-rate changes and said that China needs carefully to communicate its policy intentions and actions to financial markets.

Specifically, the G-20 communique recorded the commitment of G-20 governments to refrain from competitive devaluations and resist all forms of protectionism. Along with decisive actions to keep global economic recovery on track, the G-20 Ministers said monetary policies would continue to support economic activity consistent with central authority mandates but monetary policy alone cannot lead to balanced growth. Fiscal policy would be implemented 'flexibly to take into account near term economic conditions so as to support growth and job creation'.

The China factor was again evident in the Ministers’ commitment to 'to carefully calibrate and clearly indicate our actions especially against the backdrop of major monetary and other policy decisions to “minimise negative spillovers, mitigate uncertainty and promote transparency.”

Any direct impact of recent actions in China on the rest of the world economy and countering steps in other major countries for securing macro-economic stability would become clear gradually even as there may be uncertainty about from further moves in China or elsewhere and the US Federal Reserve’s unwinding of monetary accommodation. (IPA Service)