While the global economy is shrouded with uncertainties, global rating agency Moody’s has come up with an important observation on Asian economies. As risk-to-growth is getting entrenched globally, Asian nations are switching policies and trying to find new growth drivers. Speaking to Bloomberg TV India , Atsi Sheth, Moody’s Associate Managing Director at Sovereign Risk Group, says China’s shift from investment to consumption-led growth and India taking the opposite view makes sense.

In your recent report, you have talked about changing “growth drivers” as well as the challenges which lie ahead for some of the Asian nations. Can you take us through the outlook at this point for the Asia region?

Very broadly, one of the things that we wanted to highlight in the report is that Asia has been a “growth engine” within the global economy. So, Asian growth tends to be higher. Whether you’re thinking of advanced economies such as Australia or be it emerging markets such as India or China, their growth rates tends to be higher than other regions. What we’re seeing now is that growth in Asia, while still robust as compared with the rest of the world, has slowed considerably. And so governments across Asia are looking for ways to revive growth. And the question is not only for maintaining a level of growth close to what the historical average was, but also finding new growth drivers. For instance, China, whose growth in the past was driven by manufacturing and investment, is switching now to consumption and services, which is a difficult and a challenging transition. India, in fact, is trying to do the opposite — it has been driven more by consumption and services but is are trying to shift to manufacturing and investment — again a difficult transition. The second thing in the outlook is that in the late 1990s, when Asia did have an economic crisis, it was externally driven. Now, most exchange rates are very flexible and quite volatile, which shows flexibility, and the current accounts are either in surplus or moderate deficit like in India, and the reserve levels are really quite in abundance.

So what do you make of the diverging trends of growth drivers?

I think for both the economies (China and India), there’s a rationale for doing so. China is coming from a period where savings level was very high and at the same time the consumption has not risen as much as the growth levels would suggest. And to keep growth up, continuing to save and continuing to increase investment will simply not yield the same returns as rebalancing the growth. So if you want your growth to remain at the same level, you have to shift because manufacturing and services will simply not yield the same returns. Similarly, in India people keep talking about the demographic dividend and that is indeed the case. In India the demographics are very supportive partly because it leads to a lot of consumption and with a lot of people and many of them being young, you will get a consumption driven growth. But you need jobs to pay for that consumption. And those jobs are not going to come from agriculture only.

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