Current slowdown is seen as impact of GST, currency exchange initiative’
“As commodity prices improve, pressures of inflation and balance of payments for importing nations will return but it is unlikely that prices will surge to the pre-2014 level,” said Subir Gokarn, India’s Executive Director to the International Monetary Fund. The former Deputy Governor of the Reserve Bank of India said that the IMF’s revised growth projections of 6.7 per cent for India is largely due to the first quarter GDP growth estimates. “It would still suggest that the rest of the year will see 7 per cent growth,” he said in an interview to BusinessLine. Excerpts:
How will the higher growth projection for the global economy by the IMF impact emerging economies like India that have seen a decline in exports due to weak global demand?
It is a positive development for all countries. Many emerging economies had suffered due to commodity price decline in the last three years. Prices are now starting to stabilise because of the revival in global demand and supply management being put in place. This is helping to stabilise the commodity exporters which is a sub-group of the emerging economies.
For commodity importers, the lower prices have been a boon in terms of inflationary pressures and balance of payment. As prices improve, some of those pressures will return but it is unlikely that prices will surge to the pre-2014 level. In the advanced economies, the persistence of monetary stimulus, of some return of financial stability and fiscal stimulus, where it has been used are improving prospects for recovery.
The IMF has lowered India’s growth forecast for 2017…
This is a result of the first quarter numbers. But the 6.7 per cent forecast for 2017 would suggest that the rest of the year will see 7 per cent growth, which is consistent with the earlier outlook. The slowdown is being seen as transitory, the result of factors such as the currency exchange initiative and the roll out of the goods and services tax.
Once the influence of these factors abate, the economy will return to a higher growth rate. The forecast for 2018 -19 is 7 per cent. Further reform initiatives will contribute to achieving 8 per cent plus growth.
The World Economic Outlook (WEO) has also spoken about the challenge of declining per capita income in many countries…
The key challenge that the IMF has been talking about in the last few WEOs reflect different dimensions of the same problem — where is employment going to come from, what is driving wages if productivity is going down… It is a very complex theme, which affects a lot of countries. It is important for countries like India that are in the positive phase of their demographic transition to take this issue very seriously because the debate in India on job creation has been quite prominent for a while and will remain in the spotlight for several years.
That is a big challenge…how do we create conditions in this complex technological world that facilitates job creation? Can we look at the past in terms of relatively low-skilled labour intensive sectors as the engine of job growth or do we start looking elsewhere for this momentum in employment? These are very critical policy questions for us.
The IMF Fiscal Monitor has also looked at the rising inequality and need for universal basic income…
The issue of jobs and the issue of safety nets are very closely linked. If technology and market forces are putting constraints on how many jobs can we keep, then the government will have to find ways to provide protection for regular household income. The Asia Pacific Department of the IMF recently made projections on the income levels countries would reach based on the rate of ageing. Compared to the US, many countries will reach that transition point at far lower levels of income. These are challenges that countries like India will face in the next 30 to 40 years.
The time to start thinking about them and how to deal with them is now. Many countries are looking for ways to build these safety nets. But that needs resources, which are also required to meet more immediate needs like infrastructure.