New Delhi: Terming India a bright spot in the "cloudy" global economy, IMF Managing Director Christine Lagarde on Monday said the country will clock 7.2 percent growth in the current fiscal and its GDP will exceed combined total of Japan and Germany by 2019.
"In this cloudy global horizon, India is a bright spot. Recent policy reforms and improved business confidence have provided a booster shot to economic activity," she said while speaking at a function at Sri Ram College here.
On introduction of new series of national accounts with base year 2011-12, she said, "Using India's new GDP series, the IMF expects growth to pick up to 7.2 percent this fiscal year and accelerate further to 7.5 percent next year - making India the fastest growing large economy in the world."
The IMF chief further said, "Indeed, a brighter future is being forged right before your eyes. By 2019, the economy will more than double in size compared to 2009."
When adjusting for differences in purchasing prices between economies, India's GDP will exceed that of Japan and Germany combined, she said adding it will also exceed the combined output of the three next largest emerging market economies - Russia, Brazil, and Indonesia.
Lagarde further said, "Just as many countries around the world are grappling with low growth, India has been marching in the opposite direction."
India's growth rate this year is expected to exceed that of China, she said, adding the country will also become the most populous in the world by 2030.
The IMF chief believes that the conditions are ripe for India to reap the demographic dividend and become a key engine for global growth as it (the country) is on the verge of a new chapter, filled with immense promise.
On world economy, she said, "More than six years after the global financial crisis, the recovery remains too slow, too brittle, and too lopsided. We have pared down our forecasts of global growth since last October, despite the boost from cheaper oil and stronger US growth."
While the global economy is expected to grow by 3.5 percent this year, and 3.7 percent next year, this is still below what could have been expected after such a crisis, she added.
On the world economic situation, IMF Chief Lagarde said that China is decelerating to a more sustainable growth rate, whereas Russia and Brazil, albeit for different reasons, find themselves in recession territory.
Looking ahead, she said, "Something better may yet come on the back of low oil prices and low interest rates. Still, there are significant risks to this fragile global recovery."
Elaborating further, Lagarde said, "First risk is what I have called asynchronous monetary policy in advanced economies - normalising monetary policy in the US and the UK while Japan and the Euro Area are increasing monetary stimulus.
Even if process is well managed, it may result in excessive volatility in financial market, including in India."
The second risk is that the Euro Area and Japan could remain stuck in a low growth and low inflation gear for a prolonged period and this would make it harder for countries to reduce unemployment and excessive public and private debt, raising the risk of recession and deflationary pressures around the globe, she added.
"The third risk is that 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," the IMF chief said.
She further said that compounding these risks were geopolitical tensions simmering in different parts of the world and all these point to one thing, coordinated policies and renewed momentum into the global economy.
"In practice, this means accommodative monetary policies where appropriate, growth- and job-friendly fiscal adjustment, and above all, much needed structural reforms that are critical to lift employment and growth in countries all over the world," Lagarde said.
On fall in oil prices, she said, it provides a golden opportunity to cut energy subsidies which generally favour the middle class - and use the savings for more targeted cash transfer systems to protect the poor.
Lagarde thinks that India's weight among the group of emerging markets will increase and much of this has to do with population growth.
She said, "More than 50 percent of India's population is currently below the age of 25, and more than 12 million people enter the labour market every year. By 2030, India is expected to have the largest labour force in the world. At more than one billion people of working age, India's labour force will be larger than the combined labour force in the US, the Euro area and Indonesia."
The IMF chief added that as India grows and takes its rightful place in the global economy, the focus should remain on sound policies and inclusive institutions.
"A sound, growth-friendly revenue and expenditure framework anchored in an explicit medium-term consolidation path is critical. The recently approved Budget is a step in the right direction and contains several promising elements.
"Looking ahead, progress on other measures can help underpin the consolidation effort, such as further subsidy reform and implementation of the goods and services tax. How about monetary policy? Here too, a sound monetary policy framework to keep inflation under control and ensure financial stability is essential," she added.
Lagarde further said that a sound and healthy financial sector was essential to support strong and sustainable growth and this required banks, including public sector banks, with strong balance sheets.
As the fiscal deficit continues to shrink, Indian banks can reorient their balance sheets away from holding government securities toward more lending to the private sector for investment and growth, she suggested.
".... Make India's growth more inclusive so that that it will be more sustainable...Much remains to be done to give girls and women a level playing field in India; equal access to education and healthcare, and most importantly respect, so that all the daughters of India can feel safe in the cities and villages of your beautiful country.
"I am very heartened by the Prime Minister?s campaign on saving the girl child and educating the girl child. Giving girls a level playing field is not just morally right, it also makes economic sense. Tapping the potential of women can be a game changer in many countries. India is no different," she added.
She pointed out that as per a study, India's female labour force participation rate is 33 percent which is lower than the global average of 50 percent and well below the East Asia average of 63 percent.
The IMF Managing Director further said the Make in India and Make for India are very laudable objectives but they require an open and competitive business environment to flourish besides reliable and affordable sources of energy, transportation and communication.
She stressed the need for reaching out to the unbanked and said that access to credit is a "key link between economic opportunity and economic outcome".
"By empowering individuals and families to cultivate economic opportunities, financial inclusion can be a powerful agent for strong and inclusive growth," Lagarde said.
She commended India for extending financial services to more than 125 million people under the Prime Minister's Jan Dhan Yojana.
"What makes these achievements even more remarkable is that this financial inclusion approach is embedded in a broader strategy to use these accounts to provide cash transfers to those who need them," she said.
She said, "India's infrastructure needs are immense. By some estimates, an additional USD 1 trillion in infrastructure investment is required over the medium term. So, while increasing public spending on infrastructure is a step in the right direction, more needs to be done to crowd in additional private investment."
She suggested to resolve outstanding issues in public private partnerships in infrastructure, which is critical in ensuring that India's needs are addressed.
"Much needs to be done in easing land acquisition, expediting clearances and establishing a stable regulatory regime so that the private sector can invest. These issues are on the radar of policymakers, which is promising, they must be on the action list," she said.
Lagarde said, "It (India) has become a leader in information technology, sciences, pharmaceuticals, biotechnology...With many home-grown experts working in multiple companies around the world. And not only has India managed to find the most cost-effective way to send a mission to Mars, it also gave us yoga, ayurveda, bollywood and chicken tikka masala! This is a special moment for India."
