RBI knows banking better than US Fed: Stiglitz

Nobel laureate Joseph Stiglitz complimented the Reserve Bank of India last week for resisting pressures to deregulate the banking sector.
Stiglitz, a professor at Columbia University, said one reason India is "one of the least dark spots" in the gloomy global economic scenario is that its central bank has resisted such moves.
Stiglitz said India had largely averted a crisis that felled the United States because India's central bank did not act like its counterpart in the United States.
"The Indian central bank understands central banking and regulation much better [than the US Fed]. . . There were some political pressures to deregulate and RBI resisted some of those pressures," Stiglitz said.
"Now I think the financial markets are thankful that India's central bank did resist those pressures. The result is that India's financial markets are in better shape than they would have been if the RBI allowed wholesale deregulation [the way the] United States has done," he said, while keynoting the India Conference at the Columbia University.
The 2009 conference was organized by the Columbia Business School's South Asian Business Association.
Noting that although developing countries, especially India and China, are doing much better than the rest of the world, including the US, Stiglitz said one should not believe the effect of the US economic downturn would not affect emerging economies worldwide.
Stiglitz said that about an year ago people used to talk about de-coupling, meaning that emerging economies, especially that of India, are not linked to the global economy and so any downturn would not spread to countries like India and China.
"I always thought that that was a myth, and today it seems that the downturn in the world's largest economy has to have global implications and that is what is happening today. We are tied by a whole set of connections -- capital markets, export markets, labour, all that. . .," Stiglitz said, adding that India's economy is likely to continue growing but at a slower rate than before the crisis.
Asked how long the global crisis would continue, he said there were actually two crises: "A financial crisis and a conventional economic crisis. When the origin of the crisis lies in the financial sector, typically, downturns are a deeper and longer and this is a very severe serious financial sector crisis. And we can expect a very long and difficult period of recovery," he said.
Stiglitz justified his pessimism, giving the example of the economic downturn that hit some Asian countries in 1997-98. They were able to recover quickly, partly because there was demand for their exports. But now, countries like the US cannot rely on exports because markets everywhere are weak, he said.
Stiglitz said that today the US is not doing a good job of fixing its financial system.
"It is not likely to work. We are spending huge amounts of money that will put taxpayers in much worse shape. It is being done in a very non-transparent way that is undermining people's confidence in the government. Even after we fix the financial problem, the recovery is not going to be very robust," he said.
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