IMF India Chief Ranil Salgado says that those involved in the informal economy need to be given more and need to be helped more.
Coronavirus has ravaged the global economy and with most experts agreeing the present global economic situation is far worse than the financial meltdown of 2009 and as bad as another world war. International Monetary Fund or the IMF has come with a global outlook that predicts a recession and a contraction of 3% in the economy. India looks to be marginally better placed with a growth outlook of 1.9% for the current financial year and a rebound to the tune of 7.5% for the next financial year. IMF India Chief Ranil Salgado spoke to Gaurie Dwivedi about what more India needs to do to ensure it gets on to a higher growth trajectory and cushion the impact on the most vulnerable. Edited excerpts:
Q: $9 trillion of world economy is projected to be shaved off in the current financial year, how uncertain is the current economic scenario?
A: It is a period of tremendous uncertainty and the biggest issue continues to be the medical concerns and the healthcare challenges and that further compounds the large constraints on the world economy—you are seeing it elsewhere and in India as well and in United States also. IMF has significantly downgraded the outlook for 2020. We had earlier expected world growth to be 3% and now we have projected a 3% decline; so we are now in a global recession.
Q: India is expected to grow at 1.9%; so can we take heart from the fact that there is no contraction, unlike in the developed world?
A: India is doing relatively well compared to other parts of the world. There is a 2% reduction from our earlier estimate. So, while there is definitely some positive update for India, let me emphasise this growth is low for India. India is being hit by a number of factors-a world recession which is a contraction of demand, a direct hit to travel, tourism industries and the global financial shock that is making borrowing costs more expensive. Some of this has been offset by lower oil prices which have come down significantly—this is important given that India imports a large part of its oil requirements. Several policy steps that have been taken are well-timed. For the medical response to coronavirus, I believe India made a good and positive choice to proactively shut down the economy to contain the spread. On the other side, India has taken some measures for low income households, but given the extent of impact of lockdown, more needs to be done to cushion the impact.
Q: What more needs to be done for low income households?
A: Those involved in the informal economy need to be given more and need to be helped more. The impact of the lockdown will be significant and for that greater efforts need to be made. And this essentially means focus on more fiscal measures. And not just lower income groups, businesses that are impacted the most need to be protected, and continuing and greater support for healthcare industry.
Q: Would you have liked a big stimulus package from the government?
A: India already has fiscal constraints that it is operating in. The IMF has already pointed out that India has limited fiscal space. However, this is an unprecedented shock to the system—a medical shock and therefore more needs to be done. It is most important to ensure that the country not only has the ability to deal with the shock, but also support vulnerable households and businesses to prevent the medical shock becoming a significant economic shock. So we do believe that more fiscal expenditure can be made by the government.
Q: What would be the immediate set of reforms that you think the government should now undertake?
A: There have to be reforms on two fronts—immediately in this year there has to be greater fiscal expenditure. Long term, there have to be greater efforts to restore investor confidence, bring in measures to control fiscal slippages and have a credible commitment to improve the fiscal situation. There is a need to channelise savings to fund investment and ensure now all of it is eaten up by just public sector.
Q: So would you like the focus on big ticket infrastructure spending—something that creates jobs? The government did announce its 1 lakh crore infra plan earlier.
A: The government’s plan is very good. We support the reform towards large scale infrastructure spending since it also leads to a massive creation of jobs. It helps in the domestic economy; it helps in the export economy.
Q: Around the world, companies are now looking to create alternate supply chains. Do you foresee India gaining tremendously from this global anti-China sentiment?
A: India has the possibility of gaining; there has been a focus to boost exports for some time, there is also the Make in India programme of the government. We do think there are opportunities for India in this area. The best way is to target companies that are large players in the global value chain. A large part of that will depend on improving infrastructure, creation of backward linkage to the supply chain. India needs to create a business friendly environment, make it easier to import raw materials and intermediate goods for creation of finished goods.
Gaurie Dwivedi is a senior journalist covering economy, policy and politics.