IMF Managing Director Christine lagarde on Monday said India will clock 7.2 per cent growth in the current fiscal and its GDP will exceed combined total of Japan and Germany by 2019.
“In this cloudy global horizon, India is a bright spot. Recent policy reforms and improved business confidence have provided a booster shot to economic activity,” she said while speaking at a function at Sri Ram College here.
On introduction of new series of national accounts with base year 2011-12, she said, “Using India’s new GDP series, the IMF expects growth to pick up to 7.2 per cent this fiscal year and accelerate further to 7.5 per cent next year -— making India the fastest growing large economy in the world.”
The IMF chief further said, “Indeed, a brighter future is being forged right before your eyes. By 2019, the economy will more than double in size compared to 2009.”
When adjusting for differences in purchasing prices between economies, India’s GDP will exceed that of Japan and Germany combined, she said adding it will also exceed the combined output of the three next largest emerging market economies —- Russia, Brazil, and Indonesia.
lagarde further said, “Just as many countries around the world are grappling with low growth, India has been marching in the opposite direction.”
India’s growth rate this year is expected to exceed that of China, she said, adding the country will also become the most populous in the world by 2030.
The IMF chief believes that the conditions are ripe for India to reap the demographic dividend and become a key engine for global growth as it (the country) is on the verge of a new chapter, filled with immense promise.
On world economy, she said, “More than six years after the global financial crisis, the recovery remains too slow, too brittle, and too lopsided. We have pared down our forecasts of global growth since last October, despite the boost from cheaper oil and stronger US growth.”
While the global economy is expected to grow by 3.5 per cent this year, and 3.7 per cent next year, this is still below what could have been expected after such a crisis, she added.
On the world economic situation, IMF Chief lagarde said that China is decelerating to a more sustainable growth rate, whereas Russia and Brazil, albeit for different reasons, find themselves in recession territory.
looking ahead, she said, “Something better may yet come on the back of low oil prices and low interest rates. Still, there are significant risks to this fragile global recovery.”
Elaborating further, lagarde said, “First risk is what I have called asynchronous monetary policy in advanced economies — normalising monetary policy in the US and the UK while Japan and the Euro Area are increasing monetary stimulus. Even if process is well managed, it may result in excessive volatility in financial market, including in India.”
The second risk is that the Euro Area and Japan could remain stuck in a low growth and low inflation gear for a prolonged period and this would make it harder for countries to reduce unemployment and excessive public and private debt, raising the risk of recession and deflationary pressures around the globe, she added.
“The third risk is that emerging and developing economies could face a triple hit of a stronger US dollar, higher global interest rates and more volatile capital flows. A stronger dollar will have a significant impact on financial systems in emerging markets, including India, because many banks and companies have increased their borrowing in dollars over the past five years,” the IMF chief said.
She further said that compounding these risks were geopolitical tensions simmering in different parts of the world and all these point to one thing, coordinated policies and renewed momentum into the global economy.
“In practice, this means accommodative monetary policies where appropriate, growth- and job-friendly fiscal adjustment, and above all, much needed structural reforms that are critical to lift employment and growth in countries all over the world,” lagarde said.
On fall in oil prices, she said, it provides a golden opportunity to cut energy subsidies — which generally favour the middle class - and use the savings for more targeted cash transfer systems to protect the poor.
lagarde thinks that India’s weight among the group of emerging markets will increase and much of this has to do with population growth.
She said, “More than 50 per cent of India’s population is currently below the age of 25, and more than 12 million people enter the labour market every year. By 2030, India is expected to have the largest labour force in the world. At more than one billion people of working age, India’s labour force will be larger than the combined labour force in the US, the Euro area and Indonesia.”
The IMF chief added that as India grows and takes its rightful place in the global economy, the focus should remain on sound policies and inclusive institutions.
“A sound, growth-friendly revenue and expenditure framework anchored in an explicit medium-term consolidation path is critical. The recently approved Budget is a step in the right direction and contains several promising elements.
“looking ahead, progress on other measures can help underpin the consolidation effort, such as further subsidy reform and implementation of the goods and services tax. How about monetary policyIJ Here too, a sound monetary policy framework to keep inflation under control and ensure financial stability is essential,” she added.
lagarde further said that a sound and healthy financial sector was essential to support strong and sustainable growth and this required banks, including public sector banks, with strong balance sheets.
As the fiscal deficit continues to shrink, Indian banks can reorient their balance sheets away from holding government securities toward more lending to the private sector for investment and growth, she suggested.
IMF for greater say to India; US not ratifying reforms: lagarde
IMF chief Christine lagarde on Monday said the US is “not ratifying” the quota reforms that would facilitate larger roles of emerging economies at the multilateral institution.
The International Monetary Fund is looking at alternatives to realign quotas that will put India into the top 10 shareholders, she said.
“Implementing the reform would lift up India within the top 10 shareholders of the institution. It’s hard work because there is one member which is not ratifying. The US that was determined to re-balance, to move Europeans out and bring emerging market economies in, is not ratifying the reform,” she said at a lecture at lady Sri Ram College.
IMF, she said, is “looking at options... I hope some would be acted upon. I certainly hope so. But we need to (bring) comprehensive reforms...So that economies are represented in a fair manner.”
Quota reforms seek to provide greater say to developing economies in the IMF.
She emphasised that IMF is a global multilateral institution where countries like India must have bigger say.
The ratification of the US is necessary to implement the quota reforms, agreed by the member countries in 2010.
“It so happens when IMF was set up 70 years ago, there was a very large economy which is still the first economy in the world, the US, that had the veto right. That is in the Article of constitution. So major changes such as representation around the table can only happen with approval of the US which has about 15 per cent voting right,” lagarde said.
It would be in the interest of everybody to implement 2010 reforms, she added. India has quota of 2.44 per cent, with 2.34 per cent voting right in the IMF.