‘Rajan didn’t say world heading for depression’

With Raghuram Rajan’s comments on 1930s-like problems resurfacing having created a flutter, the RBI on Sunday said the Governor did not imply there being an imminent risk of the world economy slipping again into the Great Depression as that was caused by “many factors”. The Reserve Bank, however, added Rajan indeed said that “the policies followed by major central banks around the world were in danger of slipping into the kind of <g data-gr-id="34">beggar-thy</g>- neighbour strategies that were followed in the 1930s”.

“The Great Depression was a period of great turmoil, caused by many factors and not just beggar-thy-neighbour policies. Governor Rajan did not imply or suggest that there was any risk of the world economy, which is in steady recovery notwithstanding uncertainties like those in the Euro area, slipping into a new Great Depression.” This strategy involves ‘making a beggar out of neighbouring nations’ and is typically aimed at increasing the demand for one’s exports while reducing the reliance on imports. This is generally done by devaluing the nation’s currency to make the exports to other countries cheaper. Delivering a lecture at London Business School on Thursday, Rajan had asked central banks from across the world to revisit the “rules of the game” to find a solution, as he warned of problems similar to the Great Depression of <g data-gr-id="40">1930s</g> emerging again.

“I am not going to venture a guess as to how we establish new rules of the game. It has to be <g data-gr-id="37">international</g> discussion, international consensus built over time after much research and much action,” Rajan had said. “... But I do worry that we are slowly slipping into the kind of problems that we had in the thirties in attempts to activate growth... I think it’s a problem for the world. It’s not just a problem for the industrial countries or emerging markets, it is a problem for all of us... Now, it is a broader game,” he had said. 

Clarifying these remarks, the RBI said that a section has “<g data-gr-id="24">mis-characterised</g> Governor Raghuram Rajan’s remarks at the AQR conference at London Business School on June 25, as <g data-gr-id="25">saying-the</g> world is at risk of a Great Depression”.