## Looking Ahead: India in a Changing World

_IMF News, February 13, 2020_

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## Bibliographic details
- Published: February 13, 2020

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### Introduction
- Speech: The 8th C.D. Deshmukh Memorial Lecture by IMF First Deputy Managing Director David Lipton, New Delhi, February 13, 2020.  
- Context and framing:
  - C.D. Deshmukh’s role at the 1944 Bretton Woods Conference and his advocacy that the IMF and World Bank address development needs.
  - Recent moderation of some global risks (U.S.-China trade conflict, a hard Brexit) but emergence of new uncertainties, including the coronavirus epidemic impacting global value chains.
  - Central narrative: coexistence of secular stagnation in many advanced economies and the potential for “secular dynamism” in India and other youthful, developing economies.

### Secular Stagnation and Productivity
- Core findings:
  - Advanced economies have been stuck in low gear for a decade due to lagging productivity and weak investment opportunities.
  - Contributing factors: demographic change, legacy effects of the global financial crisis, and a possible waning of the IT revolution that began 30 years ago.
  - The full productivity impact of big data and artificial intelligence is still uncertain.
  - Global trade slowdown predates recent trade tensions and has intensified.

- Quantified impacts and estimates:
  - In the year to October 2019, WTO members enacted restrictions covering about $750 billion of trade.
  - The IMF predicts a 0.5 percent hit to global growth this year as a result.
  - The IMF estimates that last year global growth would have been 0.5 percent lower without central bank support.
  - Structural vulnerabilities: rising sovereign and corporate debt; markets signal low expectations for a business investment pickup.

- Implications for emerging markets:
  - Search for yield has brought portfolio inflows and capital volatility to emerging markets.
  - Many developing countries remain insufficiently “investable” due to opaque legal frameworks, corruption, import restrictions, and onerous regulation, constraining access to stable, long-term capital needed for large-scale infrastructure and sustained growth.

### Driving Convergence (India-focused)
- India’s strengths and recent trajectory:
  - India has been the fastest-growing large economy in recent years, with a young and growing population and significant untapped demand.
  - Services success: India is one of the largest exporters of information, computer and telecommunications services—key drivers of productivity growth and a modern path to development.

- Constraints on faster convergence:
  - Recent slowdown driven by weak domestic demand, falling credit growth, and financial system problems with significant balance sheet challenges.
  - Longer-standing drags: lagging agriculture (contributing to falling rural consumption), slowing export growth, rising unemployment, falling labor force participation—particularly low for women.
  - Manufacturing constraints: small scale of production, low productivity, trade restrictions, infrastructure gaps.
  - Skills and education tradeoffs: investment in tertiary education fueled high-skilled services growth, but broader primary education access and reduced gender gaps in labor force participation are required to realize the demographic dividend.

- Growth scenarios for reaching half of U.S. per capita GDP:
  - At an average of 9 percent growth a year, it would take 15 years.
  - At 7 percent, that would be 19 years.
  - At 5 percent growth—just a bit over last year’s fourth quarter growth—it would be 23 years.

- Automation risk:
  - By one estimate, 14 percent of the global workforce—that is to say, 375 million workers—could lose their jobs in this decade as a result of automation.
  - Some 9 percent of Indian workers could lose their jobs.

### India’s Links to Global Value Chains
- Diagnosis:
  - Greater use of foreign intermediate goods in producing exports is a route to stronger manufacturing.
  - Policies that limit those linkages (e.g., tariffs on intermediate goods) constrain the emergence of globally competitive manufacturing and job creation.

- Observations on recent trade shifts:
  - So far, trade tensions have had limited direct impact on India because its trade integration is relatively limited compared with other Asian exporters.
  - The investment channel, however, could produce significant medium-term reverberations if trade tensions worsen.
  - Example cited: a Nomura Securities study of 56 companies that relocated from China found 26 moved factories to Vietnam but only three to India—indicating India is lagging ASEAN in attracting production relocation.

- Policy imperatives to deepen value-chain integration:
  - Invest in infrastructure.
  - Reduce tariff and non-tariff barriers.
  - Implement reforms that encourage emergence of larger, more productive manufacturers.
  - Complement tertiary education successes with spending directed at primary education to broaden access and reduce gender gaps.
  - Labor market reforms focused on protecting people rather than protecting jobs.

### The Role of Multilateral Cooperation
- Rationale:
  - Rapid convergence and sustained dynamism require global markets for goods, services, capital, and technology.
  - Advanced-economy savers would benefit from opportunities to invest in profitable enterprises in fast-growing economies.

- Core areas for cooperative action and reform (policy recommendations):
  - Address frictions surrounding economic integration:
    - Solve conflicts over trade and global value chains.
    - Work cooperatively on protection of intellectual property, unfair competitive practices, unreasonable restrictions on investments, and the buildup of tax havens.
    - Undertake serious WTO reforms if needed.
  - Strengthen mechanisms to manage spillovers and volatility:
    - Mitigate disruptive shifts in market sentiment and capital flows.
    - The IMF is working to develop a more robust set of policy tools to promote stability in the face of spillovers.
  - Provide global public goods to confront existential threats:
    - Climate change; cyber-threats; ownership and use of data; new pandemics; migration.
    - These problems require multilateral solutions beyond individual countries acting alone.

- Overarching message:
  - Individual country reforms to become investable are necessary but insufficient; multilateral cooperation and preserved integration are essential to address secular stagnation and enable emerging-market dynamism, benefiting the global economy.

*International Monetary Fund press release of the February 13, 2020 speech by David Lipton, "Looking Ahead: India in a Changing World."*

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## References

- [David Lipton](http://www.imf.org/external/np/omd/bios/dl.htm)
- [People's Republic of China and the IMF](http://www.imf.org/external/country/CHN/index.htm)
- [India and the IMF](http://www.imf.org/external/country/IND/index.htm)
- [Speeches](https://www.imf.org/en/news/searchnews)
- [PRESS CENTER](http://presscenter.imf.org/)
- [https://www.imf.org/en/home](https://www.imf.org/en/home)

_Source: https://www.imf.org/en/news/articles/2020/02/13/sp021319-looking-ahead-india-in-a-changing-world_