(G.N.S) Dt. 24
“India must address remaining structural issues, strengthen the state banks and take other financial steps that are necessary to build a basis for continuing this very rapid growth.”
Talking to a TV channel, David Lipton , First Deputy Managing Director, IMF , says the real question is how countries can sustain growth over a longer period. That is important for India as well as for other countries in the world.
What do you think about India?
We think that the economy has picked up and will continue to pick up. The country has restored credibility of policy making. It is steadily carrying forward reforms; it has done, as you mentioned, the important reform of the GST, it needs to be implemented really well. I know there are some issues around that. But the steady progress of reform is important.
It is also a very good year in the world. The global economy is going from strength to strength and the global investors are looking for investments. There is a very favourable mood. Commodities are in quite a comfortable range. Things have been lined up pretty well for India and we are predicting that India’s growth in 2018-19 would be the fastest from major economies.
You have upped all of Asia thank to the India growth story. GST is a big reform but it is a disruptive reform. It has had its share and has taken a toll on the India growth story. Do you realistically believe that the pain caused by GST is behind us?
I hope so but it really depends on the government. Going for a pan Indian tax is not an easy thing to do. It will have a payoff in the efficiency and effectiveness of the tax and the tax system. I think it is good for India. I hope that the worst is behind but really what matters is the government working through the remaining implementation problems that exist and all of the intergovernmental coordination issues for collection and distribution that exist.
You have mentioned global growth picking up and global growth is at 3.5% growth and all of that is obviously a big tailwind for India. What puzzles a little is that at a time when the global growth is picking up, why is it that our exports are not picking up and exports is a big piece of the whole growth pie. When do you see exports in India begin to pick up owing to the global growth that is obviously looking a lot better?
We are looking at global growth being 3.9% for this year and the next and that is a very favourable environment and many countries exports have picked up. I am not familiar with the particulars of India but I think it is a good environment.
What we are not sure about is whether this growth will sustain for more than a year or two because we are late in the cycle of recovery from the global financial crisis and there are cyclical aspects of this. The United States is getting very close to full employment, Europe may get there before too long and so the real question is how countries can sustain growth over a longer period. That is important for India as well as for other countries in the world.
But I suspect that at least for the next two years, there will be a tailwind in the global economy and that will be helpful. What is is important is that India takes that period to address remaining structural issues, strengthen the state banks and take other financial steps that are necessary to build a basis for continuing this very rapid growth.
When you say India needs to do a lot and India should use this opportunity to deliver on some of the other structural reforms, which are the reforms that IMF would prescribe India to undertake on an urgent basis?
I first want to praise India for what it has done. Taking steps to consolidate the fiscal deficit has been a very long standing issue and the government has gained in credibility by continuing along the way. We mentioned the GST tax. We have done our financial sector assessment of India just recently and it pointed out some of the needs for both strengthening of the state banks but creation of a more competitive environment for private banks and removing some of the restrictiveness within which banks have to operate. There are a number of sort of unconventional features there.
Which would those be?
Banks hold a lot of government paper which restricts the extent to which they can lend to the rest of the economy. There have been distributional lending requirements for certain sectors. Over time, they are finding a way for the banking sector to be more supportive of private borrowers.
Now let me mention a subject that our Managing Director Christine Lagarde has been talking about. If India were to take important strides to include women more in the economy, she has said that full gender equality could actually lead to a situation where over a period of time GDP could be perhaps 27% higher. But, of course, to be able to really bring women into the economy, women have to be able to borrow and invest and start companies the way anyone else can. You need the property rights, the ability to borrow against whatever collateral a person may have in their personal life.