New Delhi: Noted economist Nouriel Roubini recently said that potential growth in India today is not going higher because of oligopoly in parts of the corporate sector.
Speaking at the Global Business Summit hosted by The Economic Times, Roubini, a Professor Emeritus at the Stern School of Business in New York University, spoke on India’s growth potential, inflation, potential recession and other aspects of global economy.
Near the end of his address – as seen in a video uploaded by ET – Roubini says that India has been growing fast even “with much lower investment ratios than China because of the better efficiency of the investment and the location of savings to investment.”
However, he then spoke on the threat that “oligopoly” poses to this growth. Oligopolies are markets dominated by limited and often big suppliers. Roubini said this will risk affecting the start-up environment. He indicated that India’s growth rate has already begun suffering thanks to this oligopoly.
“On the other side, however, this oligopoly eventually will hamper competition – domestic and internationally – risk killing new entrants and start ups, and they may lead eventually to lower total factor productivity growth. In fact if you look at the data, potential growth in India today is not going higher it’s either stagnant at around 6-7% percent or falling and I think that that degree of oligopoly in parts of the corporate sector is part of the reason why that’s happening.”
Then, Roubini addressed the the risks of a growth model based on crony capitalism. In no uncertain terms, he said that to avoid it, India needed to bring the right economic policies.
“Finally I would argue that there is risk of developing an economic model based on crony capitalism. It’s going to lead to reduced economic growth, reduced institutional robustness and a negative perception of the country by global investors.
“You want to avoid that, you want to go to a growth model that is dynamic, that is productive, that is globally competitive, ,that is sustainable, that is fair. I think that India can do it but you need to have also the right economic policies.”
Roubini, who is known for having spotted the 2008 US housing market collapse and the financial crisis that greeted it, said these words with the Adani affair playing in the background of Indian economics and politics. The US short-seller Hindenburg Research’s note accusing the Adani Group’s companies of fraud and stock manipulation has led to increased focus and questions on the Narendra Modi government’s particular attention to the group.
In a report late last year, the Washington Post had highlighted “special efforts” made by Modi himself in securing Adani power deals.
M.K. Venu, in an analysis for The Wire, noted as an extension of Roubini’s oligopoly argument that the Modi regime is keen to favour “national champions” in its economy but is executing its policy in a somewhat arbitrary and whimsical manner.