International Monetary Fund's managing director Christine Lagarde has lauded the Narendra Modi government's `Make in India' campaign and called the country a “bright spot“ on a cloudy global horizon, saying India has the potential to double the size of its economy by 2019 compared to 2009.
“India's GDP will exceed that of Japan and Germany combined. Indian output will also exceed the combined output of the three next largest emerging market economies Russia, Brazil and Indonesia...This year already, India's growth rate is expected to exceed that of China,“ Lagarde said at a function at Lady Sri Ram College in Delhi.
Lagarde, the first women to head IMF, said that the budget for 2015-16 was a step in the right direction but added that while increasing public spending in infrastructure was a critical thing more needed to be done to pull in additional private investment.
She also said that there can be synergies between fiscal consolidation and financial intermediation. As fiscal deficit shrinks, Indian banks could reorient their balance sheets away from holding government securities toward more lending to the private sector for investment and growth, she said. The IMF chief also gave a thumbs up to India's flexible inflation targeting and said, “A sound monetary policy framework to keep inflation under control and ensure financial stability is essential... growthfriendly revenue and expenditure framework anchored in an explicit medium-term consolidation path is critical (for fiscal policy).“
TRIPLE HIT
Lagarde warned that “asynchronous monetary policy“ of advance economies may result in excessive volatility in financial markets, including in India. The US and UK are normalising monetary policy while Japan and Eurozone are going the other way and providing more stimulus.
“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,“ she said. The US Federal Reserve was to later on Monday consider how soon it should begin to raise interest rates.
INDIA TO GROW AT FASTER RATE
The IMF expects India's GDP (gross domestic product) growth to pick up to 7.2% in the current fiscal and accelerate to 7.5% in 2015-16 making India the fastest growing large economy in the world. Lagarde said that by 2030, India is expected to have the largest labour force in the world and a good starting point is to make Indian labour markets more flexible. “At more than one billion people of working age, India's labour force will be larger than the combined labour force in the United States, the euro area and Indonesia,“ she said.The IMF chief also said that `Make in India' would not happen unless issues around easing land acquisition, expediting clearances and stable regulatory regime are resolved.
QUOTA REFORMS
Lagarde said the US was not ratifying the 2010 quota reforms and that major changes such as representation around the table can only happen with the approval of the US. She stressed that there is a need to bring comprehensive reforms to enable better representation of economies such as India in a global multilateral institution like IMF. “Countries such as India need to have a bigger say...India is at a ridiculously low number and so is China,“ she said. Lagarde said that there was an over representation of the some of the advanced economies and that needs to change.
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