India’s Finance Minister warned about a repeat of the 2008 financial crisis in the face of a global economic slowdown, saying that governments had yet to find a coordinated “planned” response.
Speaking to Yahoo Finance in New York, Minister Nirmala Sitharaman called for a broader understanding of “the intensity of the problem,” adding that “everything, every way” would be at risk if world leaders failed to respond.
“I think the intensity is being felt across the board now, a lot more than how it was felt in 2008,” said Sitharaman, referring to the pace of the slowdown. “What probably is not available now is that in 2008, there was a greater sense of collectively everyone wanting to respond to it from their respective quarters.”
Sitharaman’s comments come as Finance Ministers and Central Bankers gather in Washington D.C. for the World Bank-IMF meetings.
Back in 2008, world leaders at the G20 Summit pledged rapid action to address a weakening global economy amid the financial crisis, committing to reform the financial system. “We must lay the foundation for reform to help ensure that a global crisis such as this one does not happen again,” they stated. But the scenario looks a lot different today.
On Tuesday, the International Monetary Fund downgraded its global economic outlook to 3% growth, the slowest pace since the global financial crisis, attributing the drag to “rising trade barriers and increasing geopolitical tensions.”
The fund specifically noted the impact of the US-China trade tensions and the resulting tariffs, saying they would reduce the level of global GDP by 0.8% by 2020.
Once the world’s fastest growing economy, India’s growth plunged to a six-year low of 5% in the April-June quarter, pushing it behind China, the Philippines and Indonesia. The pain has been felt across the board. Indian car sales plunged 22.4% last month, prompting auto parts makers to warn of one million layoffs. A recent spike in crude prices, have only weighed on the outlook for a country that imports 80% of its oil supply.
While domestic factors including supply disruptions prompted by significant monsoon rains have exacerbated the pullback in sectors like mining and transports, Sitharaman said much of the slowdown had been caused by external uncertainties.
“Sectors which breached uncertainties [in the past] and still performed have now really started bearing the brunt,” Sitharaman said, singling out textiles and automobiles as examples. “All sectors that would show the competitiveness to export today are affected because of the developments”
New Delhi has taken aggressive measures to boost spending and shore up investment. Last month, Sitharaman introduced a corporate tax cut, slashing the base rate from 30% to 22%. The Reserve Bank of India has already slashed its benchmark repurchase rate by five times this year, with an additional cut expected by the end of the year. But with inflation running near the central bank’s 4% medium term target, there are increasing worries it is running out of levers.
Still, the Minister refused to criticize the Trump administration’s trade stance, and protectionist measures taken by other governments around the world.
“A national priority, guiding a trade talk is not a bad thing at all. Talks are happening,” she said. “It's too difficult for me to pass [judgement] sitting as I do in India, but it has caused certain levels of uncertainties.”
Akiko Fujita is an anchor and reporter for Yahoo Finance. Follow her on Twitter.
Aarthi is a writer for Yahoo Finance. Follow her on Twitter @aarthiswami.