Seizing India’s Moment, by Christine Lagarde, IMF Managing Director
IMF News, March 16, 2015
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- Authors: Christine Lagarde Managing Director
- Published: March 16, 2015
Introduction
- Speech delivered at Lady Shri Ram College, New Delhi, March 16, 2015.
- Emphasis on India’s moment: demographic dividend, technological and cultural leadership, and potential to shape global growth.
- Three-part outline presented:
- Tour of the global economy and how to inject greater momentum.
- Assessment of India’s economy and readiness to “fly higher.”
- Discussion of quality of growth and benefits for the poor, women, and youth.
State of the global economy—injecting greater momentum
- Current global recovery characterized as “too slow, too brittle, and too lopsided.”
- IMF global growth forecasts preserved:
- 3.5 percent — expected global growth this year.
- 3.7 percent — expected global growth next year.
- Major risks identified:
- “Asynchronous monetary policy” in advanced economies, with potential for excessive financial market volatility, including in India.
- Euro Area and Japan may remain in a prolonged “low growth-low inflation” state, raising recession and deflation risks.
- Emerging markets could face a triple hit: a stronger U.S. dollar, higher global interest rates, and more volatile capital flows; note that many banks and companies increased dollar borrowing over the past five years.
- Geopolitical tensions as compounding risks.
- Policy recommendations to restore momentum:
- Coordinated policies: accommodative monetary policies where appropriate; growth- and job-friendly fiscal adjustment; structural reforms to lift employment and growth.
- Use lower oil prices to cut energy subsidies and reallocate savings to targeted cash transfer systems—India example: some fuel subsidies replaced with cash transfers via the Aadhar system.
India tomorrow—ready to fly?
- India characterized as a bright spot amid a cloudy global horizon due to recent policy reforms and improved business confidence.
- IMF growth projections for India:
- 7.2 percent — growth expected this fiscal year.
- 7.5 percent — growth expected next year.
- Structural and size-related projections and facts:
- By 2019, the economy will more than double in size compared to 2009.
- When adjusted for purchase price differences, India’s GDP will exceed that of Japan and Germany combined.
- Indian output will exceed the combined output of Russia, Brazil, and Indonesia.
- Demographics and labor force:
- More than 50 percent — share of India’s population currently below the age of 25.
- More than 12 million — people entering the labor market every year.
- By 2030, India is expected to have the largest labor force in the world.
- At more than one billion people of working age — India’s projected working-age population.
- Policy frameworks highlighted as critical:
- Fiscal policy: explicit medium-term consolidation path; recent Budget's emphasis on infrastructure spending is positive; further subsidy reform and implementation of the goods and services tax recommended.
- Monetary policy: adoption of flexible inflation targeting welcomed to maintain price stability.
- Financial sector: need for banks with strong balance sheets; higher capital injections and improved operational efficiency recommended; fiscal consolidation can help banks reorient from government securities to private lending.
Making India’s growth more inclusive
- Overarching aim: ensure high growth translates into improved well-being, opportunity for traditionally excluded groups, and sustainability.
- (i) Unleashing the potential of women
- Key statistics from IMF study “Women Workers in India: Why So Few Among So Many?”:
- 33 percent — India’s female labor force participation rate.
- 50 percent — global average female labor force participation rate.
- 63 percent — East Asia average female labor force participation rate.
- 125 million — number of working-age Indian females currently part of the labor force.
- 380 million — total working-age Indian females.
- 52 percent — India’s gender participation gap (difference between male and female labor force participation).
- Declining — India’s female labor force participation rate has been on a declining trend since 2005.
- Policy recommendations:
- Remove legal and institutional barriers to facilitate women’s entry into the labor market.
- Increase labor market flexibility to allow movement from informal to formal sector.
- Support campaigns and policies promoting education and safety for girls and women.
- (ii) Increasing financial inclusion
- Achievements and figures:
- Under Jan Dhan Yojana, financial services extended to more than 125 million previously unbanked individuals.
- Policy recommendations:
- Use financial inclusion to deliver targeted cash transfers.
- Expand access of small and medium enterprises to the formal financial system to boost investment and jobs.
- (iii) Investing in infrastructure
- Need and scale:
- By some estimates, an additional US$1 trillion in infrastructure investment is required over the medium-term.
- Constraints and reforms needed:
- Crowd in private investment through resolving public-private partnership issues.
- Ease land acquisition, expedite clearances, and establish a stable regulatory regime to reduce delays from regulatory uncertainty and bureaucratic holdups.
Conclusion
- Mutual need: “the world needs a vibrant India and India needs the world.”
- With growing economic size and power come expectations of greater leadership in global fora such as the G-20 and the IMF.
- IMF commitment: working on reforms to lift India to the top 10 shareholders at the IMF.
- Closing exhortation: India’s elements are aligned to become a global powerhouse — “This is India’s moment. Seize it. Chak De India!”
Seizing India’s Moment, Christine Lagarde — Lady Shri Ram College, New Delhi, March 16, 2015.