Speaking at the city's Lady Sri Ram College on Monday, International Monetary Fund (IMF) Managing Director Christine Lagarde said India's growth rate was expected to exceed China's this year, and the country might also overtake China as the world's most populous country by 2030.
IMF remains optimistic in its assessment of India. According to Lagarde, recent policy reforms and the improved business confidence, presumably due to the outcome of last year's general elections, have provided a boost to economic activity. IMF expects India's growth to pick up to 7.2 percent this financial year, and to accelerate to 7.5 per cent next year. With China slowing down, this means India will likely emerge as the world's fastest-growing large economy.
The Fund estimates the size of India's economy by 2019 to be twice as much as in 2009. Adjusting for purchasing-power parity, India's gross domestic product (GDP) will exceed the combined GDP of Japan and Germany. India's production, too, also exceed the combined output of the next three largest emerging-market economies — Russia, Brazil, and Indonesia — IMF projects.
Further, by 2030, India could have the largest pool of workers in the world. Estimated in excess of one billion, India's labour force would be larger than the combined labour force of the US, the euro area, and Indonesia. So, the potential benefits could be enormous.
Giving a thumbs-up to the fiscal consolidation road map presented in the Union Budget for 2015-16, Largarde welcomed the adoption of the new monetary framework.
On the issue of how to make India's growth more inclusive, so that it became more sustainable, Lagarde outlined three areas of work:
Unleashing the potential of women
India's female labour force participation rate is currently at 33 per cent, much lower than the global average of 50 per cent and well below East Asia's average of 63 percent. This means only 125 million of the 380 million working-age Indian women are currently part of the labour force. The challenge, therefore, is to increase the female labour force participation.
Pitching for changes in the current labour environment, Lagarde referred to an IMF study suggesting a number of legal and institutional barriers should be removed for facilitating the entry of women in the labour market. This, she argued, would also allow women to move from the informal sector, where they were largely employed, to the formal sector.
Increasing financial inclusion
Highlighting the importance of enhancing financial inclusion and the link between access to credit and economic opportunity outcomes, lagarde said financial inclusion could be a powerful agent for strong and inclusive growth.
Acknowledging the government's recent steps to deepen financial inclusion, she said India could build on these steps and go further. She pitched for increasing small and medium enterprises' (SMEs') access to the formal financial system, to boost investment and job growth.
Investing in infrastructure
For manufacturing to take off in India, Lagarde stressed on the need for an open and competitive business environment to flourish, and the need for reliable and affordable sources of energy, transportation, and communication.
Highlighting the severe infrastructure deficit the country faced, she said, while increasing public spending on infrastructure was a step in the right direction, more needed to be done to crowd in additional private investment.
Central to these, she said, was resolving issues with public-private partnerships in the infrastructure segment. Much more needed to be done on easing land acquisition, expediting clearances, and providing a stable regulatory regime that would encourage private investment, she said.
Commenting on the state of the global economy, Lagarde said, though growth remained rather subdued in much of the developed world, except the US and the UK, there were "pick-up signs". She said growth also appeared to be slowing in emerging economies like China, Russia and Brazil, though for different reasons.
Lagarde outlined three significant risks to the fragile global recovery.
The first stems from the divergent monetary policies adopted by central banks across the developed world. This is likely to result in excessive volatility in financial markets, something from which India might not be shielded.
The second risk comes from the euro area and Japan remaining mired in "low growth-low inflation" environment for a prolonged period. This, she argued, was bound to negatively affect employment levels and reduce the ability to repay both public and private debt.
The third risk comes from a "triple hit" — a combination of appreciating dollar, higher global interest rates and volatile capital flows — which could hit emerging economies.
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