Stanley Fischer, the non-Israeli who’s been governor for the past six years of that county’s central bank, the Bank of Israel, says the economic relationship with India is a slowly growing one. He spoke to Indivjal Dhasmana on way to Mumbai for a lecture he was to deliver at the Reserve Bank of India’s invitation. Edited excerpts:
What kind of economic repercussions will the Egyptian crisis have on the Israeli economy?
Peace with Egypt is a central part of our overall relationship. .There is much more uncertainty in the area than before over the past two and a half weeks. You can see that reflected in the credit default swap, the market insurance premium that you have to give for coverage against the possibility of Israeli government default. That price has gone up a bit, a major risk the market has attached to the situation. We have a very strong economy, but have to be sure we manage it correctly. Keep monetary policy on track. Don’t allow inflation to go high too much. Keep fiscal policy on track. Don’t allow the budget to go out of shape. (After the global financial crisis) we already started growing in the second quarter of 2009. We grew 4.5 per cent in 2010. The economy is robust. But you have to manage it properly.
As Mubarak falls, what could be the repercussions?
There is a lot of uncertainty, which is not good for economies. I don’t know enough to go into very detailed scenarios. The level at which I work, I would say if there is more uncertainty, it will have a slightly negative impact on growth. As this crisis developed, the shekel (Israel’s currency) weakened a bit, 3-3.5 per cent, and it has mostly come back. So, uncertainty would have an impact on our asset prices.
Will you have to spend What is your take on our central bank, RBI’s discussion paper on opening of foreign banks in India through the subsidiary or branch route?
There is a reason why one wants a subsidiary route. Because if you come through a branch, it is not regulated as much by the local regulator as a subsidiary. There is no separate capital requirement for a branch. So, if you are concerned about the stability of your banking system, and if you believe you are a better regulator than those abroad, you think your economy has special needs, you will prefer (a) subsidiary (route).
India has emerged as the second largest export destination of Israel. How do you see the way forward?
We had 70 per cent of trade with the US and Europe until recently, shared equally. So, we had 70 per cent of trade with slow growing economies. Our exporters are dynamic. So, the central bank told exporters, guys, if you want your exports growing, better go to big economies that are growing. By the way, we are also importing from India; a two-way trade. India is a good place to be doing business with.
Your financial players are not as much present in India.
In terms of capital markets, we traditionally looked at the US, Britain. We are aware of the changing role of India and China in the global economy. India’s capital markets are more open than China. I imagine pension funds and others from Israel moving slowly into India. We should not jump into markets we don’t understand. But, I don’t see any reason why it would not develop as your financial (sector) also develops; they’re already sophisticated.
What about Israeli banks, insurance players?
I am sure that some of them want to open branches here. They are looking all the time where to go. Yours are promising markets. In terms of banking, you have strong regulations. I am sure there would be an interest. We are a very small country. The GDP is $210-220 billion; yours’ is over $1 trillion.