US-China conflict to impair global trade which is vital for India's reopening: Raghuram Rajan

As US presidential election draws near, conflict between America and China will escalate, impairing global trade which is "extremely important" for emerging markets like India and Brazil that are re-opening amid COVID-19 pandemic, former RBI Goverr Raghuram Rajan has said.

Cautioning that re will be "deeply damd firms" in ecomy, Rajan said post-pandemic recovery has to be accompanied by a process of repair.

"re’s going to be ermous bankruptcies in United States certainly and quite possibly in Europe also as we repair ecomy, reallocate resources, restructure capital structures," he said on Thursday at PanIIT USA virtual conference titled ' New Global Ecomic rm: Post CoVID-19'.

"Certainly as we get closer to US election, conflict between US and China is going to increase and that impairs global trade, which…is going to be extremely important going forward, especially for emerging markets like India, Brazil, Mexico, which are going to be significantly impaired by virus and need some source of demand to pull m out as y start opening up again," he said.

Former Chairperson of State Bank of India and Salesforce India CEO Arundhati Bhattacharya also addressed event.

"Global trade is going to be an important factor if y can jump on to it, wher it's trade in goods and services or trade in digital services, it's going to be very important and our countries desperately need an open world," Rajan said.

Rajan, an IIT Delhi graduate and Karine Dusak Miller Distinguished Service Professor of Finance at University of Chicago Booth School of Business, said that containment of coronavirus in countries like US and India has t happened despite lockdowns, while in some countries containment has been a 2-2.5 month process and virus cases have been brought down to single digits leading to re-openings.

"re are countries, of course, United States being a prime example, but also India as well as Brazil, Mexico where containment has t happened despite lockdowns, despite ermous costs. As a result, cost of virus is going to be significantly greater than for countries that have been successful," he said.

Rajan said that for countries like India and US that are still battling virus, main issue right w is to contain virus, even as he asserted that "unfortunately spread has become significant eugh that containment is going to be very difficult".

"This creates an ermous amount of uncertainty because businesses don't kw wher re'll be fresh lockdowns and how difficult y will be. Some states in US are talking about fresh lockdowns, some states in India are talking about lockdowns and have actually sort of implemented some of those right w," he said.

Rajan also spoke about some of trends that may emerge post-pandemic. "re certainly seems to be greater value to working with minds than hands, especially as we go through pandemic," he said.

He ted that in developed countries, 45-50 per cent of population can work at home so that countries can keep working even in midst of lockdown. However, in poorer and developing countries and emerging markets, number of people who can work at home is much lower, he said.

"As a result, lockdowns have been much more damaging to livelihoods, to ecomic progress and many in lower middle class have slipped back into poverty in se countries. re’s a number of years that we've lost in terms of ecomic progress," he said, adding that for going forward, re will be more emphasis on education and digital techlogy.

Rajan also underlined that re will be greater automation of work processes.

"Many companies are figuring out how to do things more efficiently during this crisis and that will stay on going forward, which also means that we will have to redeploy workers, we will have to figure out how to do that more effectively and certainly re-training is part of answer," he said.

Rajan cautioned that corporations, households and governments will have ermous levels of debt as y move out of pandemic and re will be a lot of focus on how to restructure and bring it down over time.

" bad debt problems of banks n and bad debt problems that are likely to emerge for banks across emerging world is going to be a multiple of what it was in past and this implies that we need to spend far more time on creating restructuring processes so that firms get back to work and production.

"If we don't focus on problem of repairing capital structures of se firms, we're going to have much slower growth, much more problems down line. So this is something that policymakers need to think about" he said.

Customers are turning to more frugality and savings and re will be more pressure for universal good healthcare as a result of this crisis., Rajan said. "We've seen consequences of having inadequate healthcare system, t just in United States but also in places like India," he said.

"re's going to be much more of a need for capable governments. We've seen what government incompetence can do and that has been problematic. re is going to be much more support in public for more capable governments but also more support for regulation," he said, adding that re is probably going to be more resistance to globalisation.

(PTI im)