Global crisis will result in slackening of economy,unemployment

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New Delhi, Oct 19 (UNI) Nobel Laureate Amartya Sen says the global financial crisis will impact India, both in the short and long run, with resultant problems of an economic slowdown and consequential unemployment.

Apart from the Indian stock markets, the global economic crisis will have its bearing on ''many of the booming sectors'', which have a high trade connection, Dr Sen said in an interview to NDTV last night.

Dr Sen answered questions pertaining to the impact of the global financial crisis and its relationship with the United States economy, the depth of the US recession, as to how to revive that economy and the suitability and the probability of Barack Hussein Obama being elected as the President of the most powerful democracy.

Dr Sen said India and China are less affected at least initially because they are not too dependent on the world economy.

''But we are affected. Many of the booming sectors have a clear trade connection and those will definitely be affected. So in the long run we may be very well affected and we already are to a large extent. I do not mean sensex going down. That off course is a problem, but there are bigger problems, the possible unemployment, and the possible slackening of the economy.'' Dr Sen said these are ''some things'' that India will need to be careful about.

''The government of India, China and Brazil have a lot of initiatives to take and if the US puts its house in order in a short time then I think we may end up not having as big a disaster as we almost certainly will have if we did not do adequately what is needed to be done by the public leadership.'' He said this was not only true for India, but for all the developing countries.

Dr Sen endorsed Obama as the right US Presidential candidate. He also said he was hopeful of Obama taking over the Presidency.

He said the economy of the United States was clearly in a recession.

''The question is how deep it is. But in a recession you have to see to what extent it has been caused by some gigantic external problem,'' he said.

The noted welfare economist, however, ruled out any major external problem as the cause of the recession.

''It's just that people lost confidence. And that is usually how recession happens. You lose confidence, you cut down your activities and as a result others cut down their activities. It's the classical Keynesian territory. Regenerate confidence and also support each other through expansion rather than contraction. So I think this is a good time to see what is going wrong, why is the economy in such weak shape and it is in weak shape'', Dr Sen said.

He, however, said the positive side is that just as it can decline due to a lack of confidence, once this is restored the economy can also dramatically improve.

''Like suppose there is a change in the government'', Dr Sen remarked. ''I am fairly partisan and I hope that Obama can win. Then he has to be careful. He will not be in office till January but he can already start playing a major role and re-create confidence. Set up a new office. He has wonderful advisors many of whom are friends of mine. He can get started on that. He speaks presidential anyway.

His coolness is an advantage in the time of a financial crisis. When that happens, I think you will see the confidence turn around quickly.'' Dr Sen, once a professor at the famed Delhi School of Economics, however, said it will take some months to recreate the decline that has occurred.

He said the economy does not ''rebuild in a second.'' On the other hand, the world may see a ''movement and a back to normality soon if the cards are played well.'' ''I have every reason to think that they will be played well.'' ''I believe we are in a recession already not that we are getting there. It could become deep if nothing is done about it and I very much hope some thing will be done about it given intelligent policy and it does require clear headed, intelligent thinking. You should be able to make it a fairly shallow recession and turn it around.'' Dr Sen was asked as to how to get back consumer confidence and whether the US government was on the right track with its bailout package and the nationalisation of the banks.

He said once an economy is in a state where the credit markets have declined ''so much that banks do not trust each other, then you have to do these things.'' Dr Sen said as was well known, that does not necessarily stabilise the situation to the extent that it is adequate.

''See when you come to a state that every thing the government does you are suspicious of because you think the government has played it badly. Whether somebody blames the greed of Wall Street.

It's a silly thing that John McCain did --- to blame the greed.

Greed is not a new phenomenon. Why would greed suddenly create that result? It has to do with the regulation in this system. We have to think about how to keep the ability to get away with greed and have huge profits in a restrained form and at the same time how to give confidence to every one, the small trader, the small businessmen, the large businessmen but most importantly protect the vulnerable--those who are losing employment, educational opportunities and those who are losing healthcare which is a scandal" in that country, he said.


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