The role of India’s central bank has been a mitigating factor for how the country has fared during the financial market meltdown, Professor Joseph Stiglitz told the audience at last week’s South Asian Business Association (SABA) conference, “India: Rising to the Challenge.

In his afternoon keynote address, Stiglitz also refuted the theory of “decoupling” that suggested the economic crisis would not spread from the most developed economies to other parts of the world.

“The world has become so integrated that to have a downturn of the largest economy in the world, and one of this magnitude, has to have global repercussions,” he said.

However, Stiglitz pointed to the Indian central bank’s policies as lessening the financial blow to the country of more than 1 billion people.

“India was one of the countries that resisted the wholesale deregulation movement that the United States had been exporting,” Stiglitz said. “They did it against political pressure … and now I think the financial markets are thankful that they did resist those pressures. The result is that India’s financial markets are in better shape than they would have been if they had engaged in the kind of wholesale deregulation that the United States engaged in.”

While Stiglitz still expects India’s growth to be between 5.5 and 6 percent, he believes the country will feel a contraction in the amount of capital investments from developed countries and possibly from remittances, as well.

However, the news for India remains mostly positive.

“The two largest developing countries, India and China, are the least dark spots in this gloomy economic picture,” Stiglitz said. “The prospects for India are that it will continue to grow — strongly by historical standards — but that growth will be much slower than it was before the crisis, and much slower than many people would have hoped.”

Photo credit: Roy Sinai