World Bank Group chief economist Indermit Gill believes that India needs to boost private investment and create space for the private sector as it will have to use domestic reforms to counter the impact of a global slowdown. Excerpts from an interview with TOI:
What does your global outlook mean for India?
People expect the economy to do as well as previous year, somehow the math won’t add up. You can’t keep doing well when rest of the world is gradually going down. When we were looking at the global economic growth rates, we are expecting growth of 2.4% in 2024. Since the 2008 financial crisis, this will be the slowest growth for any year, other than 2020. Global headwinds are getting stronger, although gradually. But, there is a big difference between a global growth of 3% and 2.4%. That’s the part people in India need to internalise. This means you will have to compensate for adversities abroad by growing dynamism at home.
What kind of measures are required?
You have to find ways to improve private investment, those always have to do with two or three things. One is how you regulate the private sector. Second is easy access to finance and the most important thing a government can do is not crowd out private enterprise. For both, there is an agenda that countries like India need to do. Good thing about India is there is no probability of a crisis just because of nature of the financial sector, which is well managed.
There are growing weaknesses on the fiscal side but if you look at the maturity of public debt and the terms, they have all worked well for India. India has done a good job over the last 10 years or so to get into this position. If you don’t offset the slowdown abroad, it’s hard to maintain 6% plus growth and ideally, a country like India wants to go to 7% plus.
What should be specific areas of reforms at the Centre and state level to get higher investment?
If you look at the extent to which other countries have benefited from growing weariness of investing in China, India has not done well. India should have done a lot better. Why is that so? This needs to be tackled in an urgent manner. I see the urgency at the Centre, I don’t always sense urgency at the state level. Since a lot of the things are on concurrent list, you need a double coincidence of urgency.
The ‘Global Economic Prospects 2024’ talks about 1991-1994 as a period of investment boom on back of reforms in 1991. World today is very different, and government believes that it has undertaken several structural reforms, like GST and insolvency law. Will reforms facilitate an investment take off?
There is no reason why India can’t replicate the 1990s story. We are counting on India to do it. India is going into a tough year because of elections but they will be over in May, and there will still be seven months in the year. China did one round of reforms and got government out of market for goods and services. China had the next round of reforms, which had to get government out of factor market. I don’t know if we can draw parallels. In India, reforms have to be about much more freedom for people and companies. Ambition has to be much higher to power the buoyancy.
You have flagged several downside risks to global growth? Which is the biggest risk, the geo-political risk, as the report suggests that worst of inflation seems to be over?
Worst of inflation may be over, but interest rates are going to remain high. The first risk comes out of that is financial sector risk. Two is conflict as headwinds will become stiffer. Third is commodity markets. Fourth is China because it’s a huge market and there is uncertainty about China’s prospects. For a country like India there is an upside to each one of them. Whether it hurts India or not will depend on its policies. The other side of the coin is very positive for India.
