Except demonetisation, Modi government managed economy perfectly, says Martin Wolf

If that is the case, I stress that she has to decide in a way what she has to do. She is required or has been asked to provide a new plan in three days. My own guess is that she will go to Brussels and ask them if they can make any changes or make a difference. I suspect she will be unable to find a set of changes in the discussions with Brussels, that will begin to give her a majority and a smashing defeat. So at that stage, the obvious possibility is that she sticks with where she is and we crash out with no deal as we do not get this through at the end of March 29.

However, there is also a possibility that either Labour as a party or parts of the Labour Party unite with the Conservative Remainers to impose upon the government essentially and some other alternative of which the most likely one would be agreement to another referendum. That would require us to get an extension of the withdrawal period from the Article 50 from EU. We probably get that, but not certainly and then somebody would have to organise and carry out what will be a very complicated referendum probably with three options.

So, in my view at the moment we are likely to crash out without a deal.

It is not very likely that she will be able to get a deal like the present one through and there is a significant rising possibility. But still not a huge one, which will end up with another referendum that could mean that if the remain side won, then we never leave the EU at all. All this is uncertain, chaotic and completely unprecedented.

A: There are two factors here. The simple truth is that Britain is not an enormously important economy. It is the fifth largest, but it is really quite a small economy and this is essentially a crisis that concerns Britain. So, worse comes to the worst, the pound will fall if we have to crash out without a deal and British financial assets will decline. However, my own view is this does not look like a really significant world event and I would not expect it to lead to a massive financial turmoil.

A:

However, nothing can be ruled out in world affairs and I expects the EU to be around for decades not just for a year or two. Of course, its economics are in trouble. I expect the ECB may be forced to pursue more quantitative easing (QE) and it might not like this, but I do not see any existential crisis in the EU.

A: This is another immensely unpredictable thing and the main reason that it is unpredictable is the way the US administration works. US President Donald Trump is wildly unpredictable, nobody really knows what he wants from China, nobody really knows whether what he wants from China is what his administration officials say they want from China. Nobody knows what deal he made with Xi Jinping will amount to. My guess is that in 90 days, it will not lead to a resolution with China. US might say that they have made some progress, but many of the big issues that American's have insisted upon will not be agreed by China as it's really radical.

However, there is another possibility and that happened in North American Free Trade Agreement (NAFTA) negotiations. Here, the Chinese will offer enough to Trump and he feels that he can declare a victory. Trump knows that his supporters don't understand the details anyway and he can declare a victory. Trump can say that US got everything they wanted and in that case, the dispute will be over and this is why it is unpredictable. So, the real issues will not be resolved, but may be Trump will say it has been a triumphant success as the Chinese threw him a few bones.

A:

Many of us had felt for quite a long time that the Chinese economy is quite fragile as it's so dependent on investment and the investment rate is so unreasonably high. So, I do think China might have a problem in dealing with the slowdown and it is quite possible that the slowdown is bigger than they are yet admitting.

So, what will they do about it? To deal this problem, China will start the credit boom again and that means getting even more debt. Now, that might solve the problem in the short run, but it will make the longer run problem as China has even bigger problems. That underlies the important issue that China faces some really big structural and reform issues now. It has faced them for some years and it is very difficult in their experience to resolve them. It is because of that situation that China find this immediate cyclical problem so difficult.

A: My guess is that it is quite likely that Fed hikes are finished or nearly finished. The underlying reality is that the US economy isn't that strong. In my view, quite improper fiscal expansion is now passing through US economy. Underlying growth of the economy is closer to two percent potential growth than the three percent or so that US is talking about, possibly even less than that.

Inflation is well under control so far and we are not seeing any problems there. What the Fed wants to do is to get the growth round to that sort of level and it seems to me where it is going. Unemployment is very low. Basically, we are seeing the US move from a very strong cyclical upswing to a slower long term trend growth and that will probably continue to be very modest interest rates, because essentially the economy cannot stand higher interest rates than this.

A: Well it was certainly a shock. It is not a normal event. I don't think I have any clear idea of why this happened. We have no clear idea of why this happened, but we do understand very clearly that there is a lot of disagreement between the government and the Reserve Bank of India on a quite a number of issues -- on monetary policy, financial regulation, so called dividend, the special dividend, whether the RBI has excess capital  and whole range of issues, which are obviously very significant. Obviously, people outside who don't know the details will look at Patel's resignation in that context.

A: This is a very complex issue in economics. Economists disagree very strongly on whether central banks need a strong capital position. I noticed that Raghuram Rajan, who is a very distinguished economists and former governor of the RBI, thinks it is very important particularly as the government of India does not have a high credit rating than the RBI, which has a very strong capital position.

It is a branch of the government. It is not like an ordinary bank, it can't be wound up. Its liabilities are money and it can create money freely that is what it is for. Central bank with huge amount of capital of its own is not quite obvious for me. By any international standards, RBI is certainly very highly capitalised. So, in this specific issue, I feel that the government of India has a reasonable case. I don't want to get involved in this in detail, but this is a matter of judgement that there is no very clear answer on who is right. Economists and serious economists differ on this issue very significantly.

A: If you are asking me what is my overall assessment, I would make it something like this. I think the Indian economy has continued to perform reasonably well, not startling well, very much inline with the longer term trends.

They have made some steps and I think too slowly to restructure and recapitalise the banking system. I regard demonetisation as an extra ordinary policy for which I can see no serious justification and I remain of that view. As an outsider, I see continuity, not radical change, not radical transformation, some sensible reforms, perfectly reasonable management of the economy except over the demonetisation issue. Therefore, nothing revolutionary, but on the other hand also nothing really seriously disappointing.

A: It is quite a complicated set of challenges. One of the things that I haven't realised at all, but that was stupid, is that in a way a bigger challenge was going to be to democracy than globalisation. A lot of the backlash if you like has an authoritarian tinge and to some extent, it is anti-globalisation with exception of America, where there is a very strong protectionist shift that you do not see in the same degree elsewhere. The main sort of anti-globalisation thing going on in the West is anti-migration and anti-immigration, which was not something we were thinking of so strongly. So, I would say that the really striking thing has been the rise of nationalism and authoritarianism less than the rise of anti-capitalism and anti-globalisation. The big exception to that certainly has been the US, where it is clear that they have elected a man who in addition to being a nationalist and having authoritarian tendencies, is quite a strong protectionist. How this protectionist administration will end up being at the end of the day is quite unclear. They will say that they just want a level playing field. So, when I look at this now compared to what I expected 10 years ago, when I had expected more of a backlash against capitalism and less of a backlash against democracy, it seems to me have gone a bit in the opposite direction and indeed that is what I am focusing on. I am writing a book at the moment about the crisis of democratic capitalism with the emphasis very much on democracy.

A: It is a very interesting phenomenon. What you call as large than life, what we call strong leaders have emerged in many important countries over the last 20 years and have been increasing in the last 10 years. In fact, most of the major countries of the world are now run by people like that. They are elected, so you continue to have a electoral process. They tend to be rather hostile to established institutions, rather hostile too and this varies across countries. Some are hostile to free press, to what they call fake news, to the rule of law and legal institutions. So, we have plebiscitary dictatorship as dictatorship is a strong word.  Dictatorship means an elected leader, who is the focus of sovereign power and is elected, but to some extent rides roughshod over what we thought of as liberal democracy.

Now, that seems to me a subtler way of thinking about what is going on. It can still be democracy, but the question is, is this democracy compatible fully with the sort of liberties, freedom under the law? I do not want to be simplistic about it. But looking at the world now, looking at the major states of the world, that seems to be what is emerging. Where that will go in the end, will democracy become a shell? Will the elections be real, that is the big question.