The biggest task before India is to re-stimulate growth without furthering the non-performing assets (NPAs) problem and also needs strong governance reforms.
DAVOS — As the International Monetary Fund (IMF) cut down global growth forecasts owing to the economic slowdown in India and other emerging markets, the chief economist of IMF Gita Gopinath told India Today that India was primarily responsible for the downgrade in global growth.
India Today had an exclusive chat with Gita Gopinath at the ongoing 50th annual meeting of the World Economic Forum (WEF) in Davos.
Speaking about the lowered world growth estimates, Gopinath said, “We have projected global growth at 2.9 per cent for 2019 and 3.3 per cent for 2020 which is 0.1 percentage point lower than the October estimates. The vast majority of it comes from our downgrade for India which was quite significant for both years.”
When asked the extent to which the economic slowdown in India had impacted global forecasts, Gita Gopinath said, “Simple calculation says it would be over 80 per cent.”
The IMF on Monday also lowered India’s economic growth estimate for the current fiscal to 4.8 per cent.
When asked about the slashed projections, Gita Gopinath said, “The first two quarters of India came in weaker than we projected. One sector where we are seeing the most stress is the financial sector — the non-bank financial corporations. We have seen a sharp decline in credit growth and a weakened business sentiment. All this led to the revised numbers.”
However, India’s growth (estimated at 4.8 per cent in 2019) is projected to improve to 5.8 per cent in 2020 and 6.5 per cent in 2021.
Talking about the road to recovery for India’s economy, Gita Gopinath added, “We see India recovering. There is a significant recovery coming in the next fiscal year. There is a fair amount of monetary stimulus in the system, corporate tax cuts are also there — these should help with recovery in growth.”
According to Gopinath, the biggest task before the government is to re-stimulate growth without furthering the non-performing assets (NPAs) problem.
“The most major issue to address is the weakness in credit growth. There needs to be policies that can resuscitate credit growth but at the same time don’t create further NPA problems, that is the first step. There needs to be a quicker recapitalisation of banks,” she said.
However, she added that India also needs strong governance reforms.
When India Today asked Gopinath if the ongoing protests over the CAA and the NRC in India have impacted India’s global image.
Gita Gopinath said, “I don’t have anything specific on the particular issue at this point but I can say that globally there have been issues of social unrest that have impacted growth. For example, social unrest in Chile has significantly impacted its growth. The same is true for Hong Kong.”
“Social unrest has gone up quite a bit in 2019 in many parts of the world and that has consequences for where it happens,” she added.