Mumbai:
New financial market players and instruments as well
as greater market integration have increased the risks
to emerging economies, the Reserve Bank of India (RBI)
governor told a conference in Argentina.
The
rise of emerging market economies has made globalisation
a two-way process where these economies are changing from
passive recipient to being part of active participants
in the global economy, Reddy said in the speech published
on the RBI web site.
While
growth in emerging market economies was strong due to
structural reforms and sound macro policies, they were
concerned about the sustainability of factors like abundant
global liquidity, he said.
"The
exposure of emerging markets to risky financial assets
of the mature markets has increased, and therefore the
overall global financial risks have increased," Reddy
said.
Emerging
market economies had diverse characteristics, like size
of country, financial markets and foreign exchange reserves,
and investors appeared to differentiate between them.
"The
advantage of such diversity is that the possibility of
any synchronised behaviour or a potential for contagion
amongst the EMEs is to some extent moderated," he
said.
But
there were new financial market players, new financial
instruments and new dispersed risks.
"Hence
the risk of contagion to the emerging market economies
through the financial markets, which appear to be even
more integrated now, seems to have heightened, and the
real sector in these emerging markets might not remain
immune to its consequences," he said, noting investors
may be assigning insufficient weight to downside risks.
Reddy
noted high economic growth and demand for food in populous
countries like India and China, and diversion of corn
and oilseeds to biofuel, could increase demand for foods
like edible oil.
"The
recent rise in agriculture prices could potentially represent
the beginning of a structural increase in prices,"
he said.
A
nine per cent economic growth has not helped to reduce
income disparities with about 10 million people currently
engaged in agriculture hard put to find remunerative non-agricultural
employment in India, Reddy said.
"An
overall growth of nine per cent will further increase
income disparity between agriculture and non-agriculture
households, unless around 10 million people currently
employed in agriculture find remunerative non-agricultural
employment," he said.
While
there was a need to strike parity between dependence on
agriculture and the number of people employed by the sector,
he said, the planning commission''s focus on increasing
agriculture growth rate to four per cent should improve
rural job conditions by reducing real wages and under-employment.
More
than 60 per cent of the population depended on agriculture
while
it contributes only 20 per cent to the GDP.
Reddy
underlined the need of improving quality of delivery of
essential public services such as education and health
and the need to remove infrastructure bottlenecks.
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