Noted global economist and former governor of the Reserve Bank of India (RBI) Raghuram Rajan has observed a lack of trust among countries that has led to overinvestment in chip-making as it is critical to national security. He said this in an interview with CNBC-TV18’s Shereen Bhan at the World Economic Forum meet at Davos, Switzerland.
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The former RBI governor said that the world doesn't need so many chips but since countries are building it, this would lead to a glut of chips in the world.
“Every country worth its name is trying to build chips today. It is not just the US, not just Europe, India is trying to build chips, others are trying to build chips. What this means down the line, we have a glut of chips. But a tremendous amount of investment has gone into chip making and the world doesn’t need so many chips,” he said.
“But every country thinks it's important for its security and that is an example where the lack of trust between countries creates over-investment in certain areas.”
Rajan however stressed on the need for cooperation in green investment, in new green technologies, in green financing and unfortunately, which is affected by fragmented nations.
He said, “It is important to bring down this new sort of nationalistic, protectionist wave across the world. Otherwise, we are in for a much higher cost, much lower growth world economy.”
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There's room for hope: Rajan
On the fears of recession, Rajan stated that the expectation of doom and gloom for the coming year is quite accurate but as pessimism is becoming commonplace, there is hope that things will improve. He highlighted that corporations can expect to see a reduction in profits.
On recession, Rajan believes that a weak or mild recession won't matter much in the grand scheme of things. The real question, he says, is whether or not 2023 will unearth more problems.
On China and global growth, hesaid, “I think China is recalibrating. First, of course, the zero-COVID policies, but also a lot of the policies over the last few years have been predicated on they conquered COVID and they are doing the right thing. So acting against the private sector, trying to straighten out their real estate problem. And I think they really bite off more than they could chew, including some of the relationships with neighbouring countries as well as with Western democracies. So I think they are backpedalling on some of this. I don't think they have changed their mind.”
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Rajan added we can expect some respite from China's recalibration but the cynicism will continue.
For full interview, watch accompanying video