Exports don't play as critical a role in India as they do in China. Which is why, China has been hit far harder by the meltdown than India. In fact, remittances from Indians living abroad are much more crucial for India.
"As things stand, India receives a huge quantum of remittances from Indians living and working in the Gulf region. And, the Gulf area has still not been impacted hugely by the recession. Therefore, one doesn't expect remittances into India to drop immediately from Gulf Indians," Prof Sir James Mirrlees said with a touch of optimism.
A Scotsman, Prof Mirrlees shared the 1996 Economics Nobel with William Vickrey "for their fundamental contributions to the economic theory of incentives under asymmetric information".
Prof Mirrlees was sharing his thoughts on the global economic crisis with the media in the city on Wednesday. The meet was staged by British Council and the Institute of Development Studies against the backdrop of partnership between Scotland and Kolkata.
"While China is suffering from a fall in growth rates, the Indian growth curve is still to see a marked dip. While I'm still to study and assess the Indian situation fully, one can say that India can't be entirely insulated from the meltdown. I think substantial stimulas packages from the government can fend off recession to quite an extent," Prof Mirrlees said. He agreed that remittances from the Indian diaspora spread across the US, UK and Europe could slide to a point if unemployment in the West, which were hovering at 5% levels, rise to 7-8%. But, this could be balanced in a manner by the Gulf scene where Indians are relatively better off. "Of course, there will always be some very rich Indians who will keep their remittances flow going," he said.
Even as he spoke of stimulus packages, Prof Mirrlees did stress that government expenditure can't solve the problem. "People are finding difficulty to fund investments. Obviously, India has to rely on increased demand," he said.
Dwelling on the American crisis, Prof Mirrlees said he had spoken to several senior bankers and was amazed how senior bankers failed to understand "what they were doing". "How could they have faltered in assessing and re-estimating the value of their assets. They were inventing assets and making people pay for them," he remarked.
The Economics Laureate favoured a dose of financial regulation and said he he would do away most derivatives except some futures.
"The history of economics has traced a trend of fluctuation in growth rates and national incomes. When things begin to go bad, the perception of people makes it worse. Some feel the recession will be over by mid-2009. Naturally, everything is a little uncertain now. But, it may be misplaced view that globalisation has made the scene more severe. After all, the financial world has become international now. However, we can't compare the present meltdown to the Great Depression. Governments are far more proactive this time round. Although the steps taken till now may not still be adequate," Prof Mirrlees observed.