March 23, 2015

IMF Chief says India as the “bright spot” of the global economy

IMF, International Monetary Fund chief Christine Lagarde has lauded India as the “bright spot” of the global economy on Monday ahead of talks in New Delhi with Prime Minister Narendra Modi. She was on a two day visit to India, on course of which she met RBI chief, Finance Minister and man at the mission Narendra Modi. IMF chief went on to say that India’s economy is in right hands and appreciated Narendra Modi’s efforts to introduce the best practices followed in the world. She appreciated India and Modi for being well ahead of other countries in implementing Basel 3 norms for standardizing banking systems. 

She remarked, “Among the emerging markets India is a bright spot”. She also went on to say that India is reaping benefits of good policies and policy announcements. She was underling the growth centric policies of Modi government. She urged Modi to do more efforts to open up the economy, she said India had the “opportunity to become one of the world's most dynamic economies” with growth running at above seven per cent.

The International Monetary Fund raised its forecasts of India’s economic growth to 7.2% instead of 5.6% as predicted earlier for the current fiscal year, which runs until the end of March. It stands in testimony to Modi’s policies and leadership that growth estimates are being revised many a times within a year. OECD, the Organization for Economic Co-operation and development has also increased India’s growth estimates.
IMF chief’s observations about India
1)      Team Modi and RBI sound Macroeconomic management:  The government and RBI working together on shifting the focus to good macroeconomic management, transparent government, and inclusive development. She appreciated India’s bold step of inflation targeting.

2)       Growth centric Budget: She called Modi government’s budget growth centric. "It appears that the broad path of reform is established. Now implementation has to follow - as we know, success begets success," she said. She appreciated the budget for its focus on fiscal consolidation and focus infrasturuce development. As fiscal deficit shrinks, Indian banks could shift their focus to more lending to the private sector.

After adjusting for differences in purchasing prices between economies, India's GDP (PPP) will exceed that of Japan and Germany combined by the year 2019 if India follows on the path and implements the policy decisions. She said adding it will also exceed the combined output of the three next largest emerging market economies —- Russia, Brazil, and Indonesia.
Since formation of Modi government inflation has fallen to around five percent, subsequently the interest rates have come down leaving banks with more money to lend.  

Highlights of her observation about India’s Leadership
"My dialogue with Indian leaders has convinced me that the conditions are ripe for India to be a key engine of global growth," Lagarde said in a statement on the conclusion of her two-day visit to India.

“This is India’s moment and India should seize this moment to build a bright economic future of rapid, inclusive, and sustainable economic growth and macroeconomic stability for many years to come"
Expectations and suggestions of IMF
Lagarde lauded Modi's drive to make India a major manufacturing hub and an easier place to do business. She also urged Narendra Modi to open Indian economy more to the world. 
1.        “The economy should be opened more fully to the world, and there's a good case for removing domestic constraints on growth, especially in energy, mining and power,” she said.

2         “Further reforms of India's complex labor laws to encourage young job-seekers. Lagarde said, "Urgent remedies are needed. A good starting point is to make Indian labor markets more flexible."

3         Expressed concerns about falling female participation in workforce.

4          Expects more easing of land acquisition and other clearances, will help revive the investment cycle and achieve faster growth.  More needs to be done 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.

5         She said that further subsidy reform and implementation of the goods and services tax (GST).

Brace for future shocks from changes in US interest regime
She also said that emerging economies like India face greater risk of high market volatility and sudden outflow of capital as the United States is gears up to hike interest rates by the end of this year, which will cause flow of capital as investment in US will be more rewarding. However, she also remarked India geared to face the situation as its economy is in right hands.
Urgent remedies are needed to push growth, she said, adding that "a good starting point is to make Indian labor markets more flexible". Said the former French Foreign Minister.
 IMF chief warned of high market volatility and capital outflows when US Fed hikes rates next time and asked India and other emerging markets to be prepared for such an eventuality.

In light of the encouraging observations from IMF Chief and OECD, the two giants, we can be certain that our economy is being managed by the best brains aided by a visionary and decisive leadership. We have set the tone right for next 10 years, what is important now is implementation part. We are hopeful that Modi will rock that as well.

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