Remarks by John Lipsky, First Deputy Managing Director, at Joint India-IMF Training ProgramPune, India
January 24, 2007
As Prepared for Delivery
I appreciate having the opportunity to travel to India, and in particular Pune. This city, like so many others in India, has achieved robust economic growth in recent years, which is a testament to sound policymaking and investing in people. The commitment to education, for example, has been a catalyst for the growth of a number of industries, including information technology - creating jobs and opportunities for millions of people throughout India.
My starting point today will be to touch on the state of the global economy and the state of the Indian economy, and then turn to some of the work underway at the IMF, including the valuable new training program here in Pune.
I had the good fortune to rejoin the Fund this past September, having last worked there from 1974 to 1984. I say "good fortune" in part because the Fund is a wonderful place to work, populated with highly capable economists and technical experts from throughout the world, but also because the past four years have been characterized by remarkably rapid and sustained growth in virtually every part of the world. Global growth was about 5 per cent in 2006, marking the fourth consecutive year in which the pace of expansion has exceeded four percent. That represents the fastest four-year period of global GDP gains in two decades, and the Fund projects the 2007 growth rate to be 4.9 percent. At the same time, underlying inflation has remained near 40-year lows, despite sharp increases in energy and commodity prices.
It's no coincidence that as the global economy has been growing, so has the Indian economy. As India has become increasingly open to goods and services from countries throughout the world, it is seeing the gains that come from growth in those countries.
But continued growth in the global economy is not preordained, of course, and policymakers in India, and all other countries, need to be aware of the factors that could lead global growth to slow. First, the cooling in the U.S. housing market could cause a slowdown in the U.S. economy. Second, rising inflationary pressures may require greater monetary tightening than expected. Third, oil prices remain vulnerable to supply shocks and political uncertainties. Fourth, the financing of global imbalances could bring on disorderly exchange-rate adjustments.
Over a longer time horizon, a key challenge for emerging market countries as they seek to sustain their recent growth is to harness the benefits of globalization while minimizing the accompanying risks. The way to achieve this is relatively clear. It includes a firmer commitment to sound fiscal and monetary policies, for example, which would lead to more sustainable debt burdens. Further developing and deepening local capital markets, particularly in Asia, will promote greater regional integration and will allow countries to make more efficient use of huge pools of domestic savings, while also helping to lay a sounder foundation for future growth.
The challenges I've just touched on extend to India, but the country has the benefit of being able to approach these issues from a position of strength. With an average annual growth rate of eight percent over the past three years, which has been among the highest anywhere in the world, India will find it much easier to move forward with its ongoing reforms than it would in a slower-growth environment.
India's growth is a testament to the payoff from comprehensive economic reform. The task now is to implement the policies that will enable India to build on this growth, while also continuing to reducing the poverty rate. Modernizing the country's infrastructure - from transportation to telecom - will be critical if the arteries of commerce are to remain strong and clear. Just as important is maintaining a policy climate that allows India's extraordinary reservoir of human capital to flourish. That means maintaining price stability and fiscal discipline. It also means continuing to deregulate the business sector. The Indian government understands the need for these reforms, which will help to sustain the economic growth rate, and we support the government's strategy to move forward.
With the evolution of India's financial system, and the international financial system, the IMF is evolving as well, and the current period of relative calm presents a special opportunity for the Fund to adapt to new economic realities.
Before I talk about our reform agenda though, let me give you a brief summary of the IMF and its mission.
One of the IMF's core responsibilities has always been to lend to governments when they are facing a balance-of-payments crisis. But the strength of the global economy has enabled the Fund to focus more of its energies on two of its other core responsibilities - technical assistance and surveillance. Technical assistance involves helping countries to build up their human, and institutional, capacity to design and implement effective economic policies. Surveillance, on the other hand, is focused on promoting growth and financial stability in the international economic system, and to that end it involves discussions with member countries about how to advance those objectives, and how to prevent economic crises.
Technical assistance and surveillance are both at the heart of the reforms underway at the Fund. We believe these reforms, which make up what we call the Medium-Term Strategy, will significantly enhance our ability to promote even greater growth and stability in economies throughout the world. While the Strategy covers all aspects of the Fund's work, I would like to focus on our technical assistance efforts.
The IMF fully appreciates the complexity of economic policymaking in a world of increasingly integrated national economies, where officials are confronted with a daunting number of complicated issues and rapidly-changing data that can require instant analysis and action. This makes it even more important for countries to develop sound institutional underpinnings, and to that end we offer an extensive system of training and education for policymakers - at our headquarters in Washington and at seven regional training centers throughout the world. Our goal is to help countries build an intellectual infrastructure - one that assists policymakers as they strive to create macroeconomic stability and to build institutions that strengthen domestic policymaking.
We have already trained more than 50,000 country officials, and this training has focused on a number of topics, from the integration of financial sector analysis into macroeconomic analysis to trying to ensure that aid flows and debt relief are absorbed by low-income countries in a manner that doesn't introduce economic inefficiencies or distortions.
In conducting this training, we recognized that countries needed programs that could be specifically tailored to regional economic conditions. So working with the Reserve Bank of India, and thanks to the generous financial support from the government of Australia, we established the Joint India-IMF Training Program, known as ITP. Serving Indian officials, as well as policymakers from South Asia and East Africa, the ITP will cover a range of important topics, including macroeconomic management, monetary policy, bank supervision, and foreign-exchange operations.
I had the opportunity to visit the ITP campus today, and I can see that it offers an environment conducive to learning, with expert teachers drawn in part from the ranks of the IMF. I'm told that the first three courses, held last year, were very well received. With many more such courses to be held in the future, India will be building on the strong foundation established over the past 15 years - a foundation that will deliver even greater growth, stability, and opportunity.
As all of you know, there is great reason for optimism about India's future, and we saw one very meaningful symbol of investor confidence in India just this month, when a consortium of investors, led by the parent group of the New York Stock Exchange, bought a 20 percent stake in India's National Stock Exchange. They see what so many millions have experienced - the extraordinary potential in the Indian economy, where opportunity is spreading faster and farther than anyone ever could have imagined.
The opening of the Joint India-IMF Training Program reflects the Fund's deep commitment to working with India, arm-in-arm, to help create the conditions for India's economy to continue to grow, so the men, women, and children of this country can see all of their hopes realized and their dreams fulfilled.