April 20, 2017 10:00 am JST

India sounds off about Beijing's economic policies

Chief economic adviser warns of 'systemic risk' to the global economy

KENJI KAWASE, Nikkei deputy editor

Indian Prime Minister Narendra Modi, left, and Chinese President Xi Jinping attend a BRICS summit in India in October 2016. Economic rivalry between the two countries is heating up. © Reuters

HONG KONG The Indian government's chief economic adviser had some choice words for China recently, labeling the country a "big source of systemic risk" to the global economy.

In an interview with the Nikkei Asian Review and other members of the media in Hong Kong last month, Arvind Subramanian stated that China's rapid accumulation of credit represents a medium-term risk. "How do you resolve this credit surge that is associated with [various] events?" he said. Mounting leverage in the world's second-largest economy, he added, is "probably the biggest issue confronting the global economy, apart from [U.S. President Donald] Trump's retreat from globalization and all that."

Acknowledging a rivalry exists between India and China as each pursues its own path towards development, Subramanian refrained from predicting anything. "Nobody knows how it's going to pan out," he said. But he did mention that political reform in China has yet to materialize. "At some point, politics has to catch up with economics, except that we waited and waited and waited and [it] hasn't happened."

Subramanian also noted sharp differences as regards credibility of economic data. India's sudden change in how it calculated gross domestic product in 2015 raised eyebrows, but Subramanian defended the change. "The notion that Indian GDP data is under political influence is complete nonsense," he said, stressing that the country has an independent statistical agency.

He did not, however, hide his skepticism over Beijing's number-crunching. "I don't know what China does, [but] certainly their GDP is much less volatile than ours," he said, sarcastically referring to the stable and predictable figures the country has reported in recent years.

Discussing ways to help banks burdened with bad loans -- currently a hot topic in India -- Subramanian cited a past Chinese example, when asset management companies were set up for each of the four largest state-owned commercial banks. After clearing their balance sheets of bad loans, all four banks were deemed resilient enough to list their shares. This option seems open to India, but as Subramanian confesses, bailing out so-called bad banks requires taxpayer money and "that is very difficult for any democratic political system."

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