New geoeconomic risks are threatening global economic stability and India will have to craft a crisis response plan as these risks—arising in the developed world—start unfolding.
The first risk to the global economy is the tightening grip of deflation in various rich countries—the U.S., UK, members of the European Union, and Japan—while inflation persists in the emerging economies. The developed world is trying hard to nudge prices up, while emerging economies such as India, South Africa, Turkey or Brazil are struggling to tamp down rising prices.
These diametrically opposing economic conditions have yielded contrary monetary policies. Central banks trying to pull up the inflation curve have kept interest rates extremely low, virtually near zero percent. In contrast, emerging economies have kept interest rates high to discourage prices from climbing further.