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Big challenge for the Indian economy is job creation and agri reforms, says IMF's Gita Gopinath
January 22, 2019

Big challenge for the Indian economy is job creation and agri reforms, says IMF's Gita Gopinath

India's growth rate for 2019 is highest for a large economy and the biggest growth drivers are lower oil prices and a slower pace of monetary tightening than previously expected.

That's the view coming in from Gita Gopinath, the chief economist of the International Monetary Fund.

But going forward, "the big challenge for the Indian economy would be job creation and reforms for the agricultural sector", said Gopinath — the first woman appointed to the prestigious role at the IMF.

Here's the full transcript of her interview with CNBC-TV18 in Davos.

Q: You have just presented the world economic outlook and it looks bleaker than it did in 2018. In order of priority what would be the most significant risk facing the global economy today?

A: There are two major risks. One would be an escalation in trade tensions and the other would be worsening of financial conditions because relative to 2018 what we have seen is that the two have become intertwined. So, that poses major risks to the global economy.

Q: Christine Lagarde talked about this new multilateralism but clearly at this point in time global leaders like President Trump don't think much of multilateral institutions or multilateral framework. So, what hope do you have of this new multilateral order to take off?

A: We need to have cooperation, we need multilateral institutions to address many of the issues that we are facing. In fact one of the things that we point out in our outlook is that one of immediate actions that need to be taken is for countries to come together and resolve the trade differences and do that quickly. So, that is a very important factor that we require for growth to continue in the global economy.

Q: Do you feel confident of that especially in light of the conversations and negotiations that are on between the US and China? One day it seems like it is moving forward, the other day it looks like its status quo. What is your own sense of being able to breakthrough on some of these crucial trade negotiations?

A: Compared to our October 2018 outlook, there has been an improvement in the trade sentiment. The G20 meeting in Buenos Aires which was coming together of US and China, trying to work out their trade differences, so those are pluses. There is uncertainty there is no doubt about it and that will remain but we have to resolve this as soon as possible.

Q: Brexit is one of your most immediate key concerns for global growth as well as the global economy. How much lower do you see the forecast trending if you do not see trade negotiations between US and China kicking off in the manner that we expect and the Brexit uncertainty were to continue?

A: Those are two very important risks, we already talked about US and China. In the case of Brexit, our forecast are for UK to stay in the free trade area and the transition to be smooth. If that changes and there is a costly no deal Brexit then that can have very important consequences for UK and therefore for the world economy.

Q: Let me ask you a few questions on India. 7.3 percent that is the outlook as far as India is concerned for 2018-19, slightly higher for 2019-20, what would you be watching out for when it comes to the Indian economy, the next few triggers?

A: Indian growth is high. We still say that it is the highest growth rate for a large economy, so that is a big positive. The other positive is actually the forecast growth going up in 2019 and that is because of two factors - the lower commodity prices and the other one is that we expect because of the low commodity prices the weaker impact on inflation and that monetary policy would be more accommodative, those are pluses. However, going forward the big challenges for the Indian economy would be job creation and reforms for the agricultural sector.

Q: This business of doubling farm income by 2022 which is the aspiration that the government has, as you look at where things stand today, do you believe that there is realistic and what would the policy imperatives be in order for us to be able to get there?

A: There is tremendous amount of distress in the agricultural sector and I believe that farm loan waivers don't solve the problem on any kind of permanent basis. We certainly need to ensure our farmers against very volatile food prices and we also need to work with giving them better technology, better seeds.

Q: An income support scheme?

A: A cash transfer would be absolutely better than loan waivers. It would be more broad based and would keep the incentives aligned.

Q: A Universal Basic Income (UBI) and this was an idea that Arvind Subramanian had touted in his economic survey, we don't know whether the government will do it or not, but do you believe that is a good idea and that is something that the government should consider?

A: Universal Basic Income in its original form is unlikely to be implemented in any developing country because that implies giving money to every single citizen in the country including the very richest. So the question is about targeting the most vulnerable parts of the society and there are many schemes already in place, they try to do that and we just have to make sure that it is more effective.

Q: I want to ask you about what you are seeing at the Reserve Bank of India (RBI) and the IMF did say that it was looking at the developments of the RBI very closely in light of Urjit Patel's resignation. There is now a capital framework committee that has been set up, looking at the use of RBI's capital reserves. How is the IMF looking at this issue?

A: We very strongly call for operational independence of the central banks and not just the RBI but central banks all over the world and that is very essential to maintain macroeconomic stability. There is nothing wrong in having a committee set up to discuss issues that are relevant to both the central bank and to the government. But when it comes to important decisions on the operational side, it has to be independent.

Q: What should be the guiding parameters as this committee looks at issue of capital reserves and whether the government should be able to access them or not to your mind?

A: The question is that does the RBI have enough reserves to maintain macro stability for the economy? Reserves can be quite fickle and they can change very quickly in a very short amount of time, so that has to be kept in mind.

Q: There is a clamour in India for a repo as well as CRR cut, the previous governor did not believe that a CRR cut was an adequate tool especially when it comes to liquidity management. What is your take given the global context and where things stand in India?

A: We do not prescribe very specific policy instruments for any country and that would be absolutely the RBI to decide on that.

Q: But you had a conversation with Raghuram Rajan, he was the Chief economist at IMF as well and of course you know him well, any words of advice that he may have given you? Any conversation that the two of you had?

A: Raghu has been a great friend and mentor for many years, and so yes we have been talking and he has always given me great advice.


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