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.

Summarizing

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.

Climate Change : China and USA the real spoilers come together, Likely to put blame on India for not doing enough in the scheduled climate talks in Lima

Climate change is an issue that should concern all of us. There are countries and populations which are more vulnerable to climate change by the virtue of their geographic location. The small island nations like Maldives, Mauritius and many other small island nations in the oceans across the world face an existential threat. About 50% of world's population lives within 200 kilometres from the coast. The cities located on the coast line like Mumbai, Shanghai and those like Singapore and Hong Kong are among the biggest business centres of the world. Climate change articles have now become permanent features in the newspapers across the world.

 Like always USA is playing it cleverly and has come together with China to play spoil sport and put the blame on India which at present is a distant 4th in carbon footprint. China as expected is the largest at 24 per cent contribution followed by USA at 17 per cent. If the rise in world's average temperature has to be kept below 2 degrees Celsius then these two countries need to do more and not just act like it. As per Sunita Narain, Director at Centre for Science and Environment China and USA together will account for 50 per cent of 1000 giga billion tons of carbon emission by 2100. At present these two countries contribute about 40 per cent. China and USA have signed a deal this November in the run up to the talk being held in Lima, Peru. Under the deal, China committed to cap its output of carbon pollution by 2030 or earlier and to increase its use of zero emission energy to 20% by 2030. The US agreed to reduce its emissions by between 26% and 28% from their 2005 levels by 2025.

“The US-China deal is a game changer, and it adds tremendous momentum to these talks in Lima," says Jody Freeman, the director of Harvard University's environmental law program and the former White House counsellor for energy and climate change. "The US and China are the two indispensable nations on this problem. Together, they’re responsible for 40 per cent of global emissions.”

Todd Stern, the US state department’s climate change envoy, said the US-China deal could push other big polluters such as India, Japan, Brazil and Russia to come forward with their own post-2020 targets. That in turn boosted prospects for a good outcome in Paris

US media has often criticized India for not doing enough as the 4th biggest emitter but what they conveniently forget is that India's per capita emission is about 1.5 tons which is far too less than the world average at 4 and far too below than that of US and China despite its huge population. China has said that it is going to peak around 2030, which means that they are going to add more. India happens to be the fourth biggest polluter because of it 1250 million strong populations. It ranks far below the world average per capita emission. US politicians should focus more on the domestic issues like racism and come to terms with the fact that US no longer has the influence it once had and the world is not going to toe their line. Indians can see beyond beautifully crafted statements and are not fooled by aura of orators. They criticize India for not doing enough for the relationship that Obama once said was important to them. They need to understand that India is not going to be an "ally" they are used to having. When it comes to taking the actions that can really help mitigate the challenges posed by climate change they back off for instance sharing the energy efficient technology with the developing countries as it hurts their companies. India has done commendable job in tackling climate change issues. From ambitious solar energy targets to energy efficiency, we are doing a good job and will continue to do so as we understand that it is for our own benefit.

The Lima talks are a run up to the climate pact deal to be finalized next year in Paris. India is often called the spoiler by the US media be it the WTO deal that it is said to have sabotage a few weeks back. India must resist any pressures and be firm to its stand of universal but differentiated responsibilities. I expect that India's representatives to the talks in Lima will be able to show mirror to USA and China and show to the world that the so called deal is actually an attempt of biggest polluters getting together, acting like they are acting but in reality it falls far behind what they need to do as the 41% contributor to the current situation.