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Indian economy is going to be in top three, if not the top one, says IMF chief Christine Lagarde

ET Now|
Updated: Oct 11, 2018, 01.36 PM IST
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De-escalate, fix, do not break: Christine Lagarde, IMF
De-escalate, fix, do not break: Christine Lagarde, IMF

Highlights

  • It has started drizzling, there is still time to fix the roof.
  • There is a new multilateralism that growth has to be more inclusive and sustainable.
  • There should be a continued momentum to push land and labour reforms.
As the US economy improves, there will be monetary tightening. Steer the boat, do not drift because measures can be taken, shock absorbers can be prepared in order to deal with this new reality, says Christine Lagarde, IMF chief in an exclusive interview with Supriya Shrinate of ET Now at the annual IMF and World Bank meeting on Indonesia’s resort island of Bali.

Edited excerpts:


Six months back while talking about global growth, you had very categorically stated that you see dark clouds of risks along the horizon. Have your worst fears come true?

A year ago, I said sun is shining, fix the roof. Six months ago, I said “watch out, clouds are on the horizon”. There is still time to fix the roof. We are not seeing some of those clouds opening up a bit and it is not pouring down with rain but it has begun to drizzle seriously.

In your opening address in Bali you quoted Adam Smith to say how natural relations amongst nations are today the most fertile source of discord and animosity, as far as businesses are concerned. You have also urged world leaders to fix and not destroy global trade. How hopeful are you that they will pay heed?

Trade, when it works, is a win-win game and it is also a game which has to include everybody, a topic that we should have paid more attention to and that we should pay attention to now in relation to trade and technology. Because it is a win-win game, I very much hope that tensions will de-escalate because players will appreciate that it is a win-win game and will decide to sit around the table to fix the system and not destroy it. That has been my key message – de-escalate, fix, do not break.

Is there a new kind of multilateralism that we need to wake up to and espouse the world over, whether it is emerging markets or developed economies?

There is a new multilateralism in that clearly growth has to be more inclusive, growth has to be sustainable and there has to be more cooperation, that is my bottom line. More inclusive because if you have a system which by virtue of either trade, technology or policies, favour capital over labour, people feel excluded, disenfranchised, no longer in charge of their own destiny. It is not going to produce a very cohesive or harmonious society. We have only one planet. I have a son who is exploring whether there are planets out there in space but as far as I know, there is one and we better make sure that it is safe not only for us but also for our children. Without cooperation, those problems will not be fixed solo. It requires to involve all members.



The IMF has been on record saying that capital outflows are the kinds that have not been seen since the last decade. We have seen a carnage of sorts as far as emerging market currencies are concerned, India included. How long will this last given that US interest rates will rise and we are seeing a dollar strengthening?

First of all, outflows are not something that is happening. It is a risk that is there and could materialise but it has not happened, number one. Number two, yes it is a new reality and we are going to have to collectively cope with it because when a country like the United States improves because inflation is hitting the target, because unemployment is rock bottom and because growth is up, clearly there is going to be monetary tightening, clearly interest rates will impact financing flows and financing costs. All that will have an impact on capital flows. We need to prepare for that and now is time to do so which is why I have said steer the boat, do not drift because measures can be taken, shock absorbers can be prepared in order to deal with this new reality.

Not too long back, the IMF had called India a sweet spot in the world economy, a bright spot there. Do we still continue to be that bright spot or is dullness somehow taking over?

My take is that the growth of the Indian economy is still going to be in the top three let us assume, if it is not top one. So there is significant growth happening and there are many ingredients that are supportive of continued growth in India. But it is also an economy that has its vulnerabilities and the fact that you are dependent on external supply for oil and the fact that oil prices are going up at the moment clearly is a vulnerability that needs to be arrested

India’s current account deficit is a structural problem and we have hiked some import duties to counter it. Does that run the risk of us being seen as people who are joining the chorus on protectionism? Does that bother you?

Anything that raises protectionism, that erects barriers to trade worries me because I believe that trade has been extremely beneficial. It has lifted lots of people out of poverty. It has reduced the cost of living for many people, particularly the low income people. It has improved productivity. It has improved innovation. We need to hang on to those benefits and not begin raising barriers and tariffs.

IMF has lauded India for GST and IBC reforms but has categorically urged Indian land laws to move into the next trajectory for sustainable growth. How hopeful are you about these reforms a few months away from general elections?

The government and particularly Finance Minister Jaitley have been very determined, decisive and courageous in putting in place the GST. I hope that we are seeing the benefits that arise from the simplification of taxation as a result of that. The bankruptcy law reform was a critical reform too. I would hope whether now or in the short term, there is a continued momentum to push land and labour reforms. I share your concern that pre-election periods are not the best to implement reforms that touch on very sensitive points like ownership and labour terms.

I have to talk to you about Gita Gopinath’s appointment, not just because she is an Indian but she is a woman and I am all for powerful women right at the top…

And she is a terribly talented economist.

How did she make the cut? What turned the tide in her favour?

She is just an impressive human being. She happens to be a woman and I am very proud that finally the IMF has a chief economist who is a woman but is also unbelievably talented. She has multiple interests, resources, intellect that I hope will take the research department of the IMF and the institution itself into deeper and further directions in order to better serve the membership and she is highly motivated to join us and we are thrilled that she is coming on January the 3rd.

As a champion of gender, the #MeToo movement really took off in the US but is seemingly exploding in India as well. What do corporates and policy makers and organisations need to do to make workplaces safe and fair for women?

You have to start with eliminating discrimination and promoting women because the more women there are at the top and in all managerial levels of institutions, the less will be those horror stories.

So I would start with these two first and foremost and I would say that having legal provisions available to fight harassment is also a critical component. India has a legal system in place and respects the rule of law and that should include anti harassment provisions.

Does #MeToo trigger a concern that corporations may shy away from hiring more women? Will this lead to corporations being resistant and perhaps reluctant in getting more women on board?

If that was the case, then those companies would lose a lot of talent, would not access and tap into a workforce that is often super qualified, very efficient and determined to join and to offer contributions. So I would really hope that if only driven by economic benefits they would not go in that direction.

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