World Economy Has Entered a New Era of Slow Growth: Ruchir Sharma

Morgan Stanley’s Ruchir Sharma, the author of The Rise and Fall of Nations, talks about the era of de-globalisation, how India’s is “probably growing 5-6 percent less than what the government claims”, the reform agenda of the Modi government and the nature of Rajan’s exit in a Facebook Live with BloombergQuint.

Talking about the global slowdown and the rise in protectionism, especially in India, Ruchir says the world economy is weaker than before, prompting investors to seek safe havens. He also elaborates on what this means for India.

The Era of ‘De-globalisation’

In his book, Ruchir Sharma talks about the current era as one of ‘de-globalisation’, thanks to the rising trend of protectionism. India, in particular, has taken the maximum protectionist measures this year, he says. This has led to diminishing capital and trade flows the world over as U.S. and European banks are now much more reluctant to lend money overseas. The global capital flow, which hit $9 trillion in 2007, is back at levels seen in the 1980s - at $1.2 trillion, Sharma mentions in his book.

According to him, banks lending beyond their borders was a big part of why capital flows “exploded” in the 1990s.

Markets High on Liquidity Amid Slow Growth?

The trend of negative interest rates, Sharma says, is reflective of a weak global economy. He believes that the world is stuck in a slow growth phase, primarily because the rate of population globally has diminished.

Asked whether the market is reading this right, Sharma says the US Federal Reserve’s decision to hold interest rates in late February came as a relief to global markets which has been stuck in a range for the last two years. Abundant liquidity has meant global asset classes are expensive and equities are no exception and the only way to seek high returns is to identify countries with high growth, he suggests.

India Amid the Global Set-up

Sharma points out that India may have ignored the fact that its growth was buoyed by global tailwinds. He believes India is actually growing at 5-6 percent against the 7.6 percent figure that the new methodology of GDP calculation threw up in the January-March quarter.

Modi Government and India’s Reform Agenda

Talking about Prime Minister Narendra Modi’s term, Sharma says that reforms under this government has been at best incremental in nature.

On the ‘Hounding Out’of Raghuram Rajan

Sharma says the lesson from the nature of Rajan’s exit is that “in government, if you want to survive, you can’t have too large a personality.” The problem, in this case, he says was as much about personality as it was about policy.