- 2 years ago
World Bank's Country Director to India Auguste Tano Kouamé talks on global factors and its impact on Indian economy in an exclusive interview with NDTV's Priyanshi Sharma.
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00:00 The World Bank has released its India development update which explores what the forecast for the Indian economy is,
00:06 how the Indian economy is currently doing and what are the challenges ahead.
00:10 To help us understand all these multiple facets, we are joined by the India director of the World Bank, Mr. August Kwame.
00:18 Thanks very much, sir, for joining us this morning.
00:20 And my first question to you that you've released the India development update by the World Bank
00:25 and just help us understand, for a layman to understand, how is the Indian economy doing
00:31 and where do you see it plays among other South Asian countries?
00:35 Thanks Priyanshi, thanks for having me on your program.
00:38 Short answer to your question, Indian economy is doing very well,
00:42 even compared to the best performing countries in the world and in South Asia in particular.
00:49 Last year, India's economy grew at 7.2 percent, which was the second highest growth rate among G20 countries.
00:59 We're forecasting India's economy to grow at 6.3 percent in fiscal year 2023-2024,
01:05 which is a slight reduction from last year's strong growth.
01:10 But this slight reduction to 6.3 percent growth will still make India one of the fastest growing countries in the world.
01:21 Now, we should remember also that we are in a world that is in a very difficult place today.
01:29 We have a lot of headwinds. We have geopolitical tensions.
01:33 We have high inflation. We have high interest rates,
01:36 which makes it very difficult for individual countries to grow faster than they would have under normal circumstances
01:45 or within a benign global environment.
01:49 So within that, I would say, unfriendly global environment,
01:53 India's growth forecast of 6.3 percent is quite an achievement, if it were to be realized.
02:01 And we believe it will be realized. We believe India will hit that forecast.
02:07 In the long term, there is possibility for India to grow even faster.
02:11 And I'll be happy to talk about what it will take for growth to be even higher in the long term.
02:18 But for now, let's remember that India is one of the fastest growing economies,
02:23 at least among major economies in the world, and including compared to other South Asian countries.
02:29 Right. And the last point that you mentioned that we are capable and we have the potential to grow even faster than this rate.
02:36 So what will it need to be able to achieve that?
02:39 Of course, you've mentioned we're the fastest growing, and that's great.
02:42 But we are also the most populated country, which means that the pie is bigger.
02:46 But there are so many people who want a slice in that pie.
02:49 And India's income inequality is one of the steepest across the world.
02:53 So do you think that income inequality is a major challenge for India, that while it looks great that we are the fastest growing our economies?
03:01 I mean, overall, the figure looks great.
03:03 But we are seeing that the top 10 percent of the country holds more than half of the country's income,
03:08 which shows you how skewed the benefits of economic growth are.
03:12 So do you think that's a challenge for India?
03:15 Well, it would be a challenge for any country to have this kind of inequality.
03:19 It would be a challenge for any country.
03:21 And we all would like to see everyone rise above poverty.
03:27 And that would be the ideal.
03:30 And I think we should pursue that.
03:34 There is no world where there is no inequality.
03:37 But the goal should be to reduce that inequality to the bare minimum.
03:41 So in the short term, inequality is a challenge.
03:44 It's not a good thing to have.
03:46 In the long term, it will be a challenge also because high inequality today makes it difficult for the economy to grow faster.
03:53 Because inequality has been shown through research that after a certain level, inequality is detrimental for growth.
04:01 Now, there was an aspect to your question which suggests that India needs to grow faster and should grow faster and can grow faster.
04:10 Yes, India can grow faster.
04:11 India has strong fundamentals.
04:14 India's macroeconomic framework is very strong.
04:18 India has a demographic dividend or potential demographic dividend with a young population.
04:24 65% of the population is less than 35 years old.
04:28 In a large population, this provides a strong pool of potential workers.
04:34 If well-educated, if well-skilled, and if put to the right jobs, they can power the economy to grow a double digit.
04:43 India wants to become a high-income country by 2047, which is a fair ambition.
04:50 It's achievable.
04:51 Our data shows that for that to be achieved, though, India needs to grow at 8%.
04:55 And 8% is perfectly doable.
04:57 We're not talking about 10%, 12%, which some countries have achieved in the past, by the way.
05:02 8% is perfectly achievable.
05:04 India has achieved that in the past, maybe not for a long period of time.
05:08 But India, we think, could achieve 8% and sustain it for about 20 years so that it can achieve high-income country status by 2047.
05:17 For that to happen, in addition to the strong fundamentals that I talked about, macroeconomic fundamentals, young population, very good public investment being now rolled out, there are a few other things that are needed.
05:32 The first is the private sector investment needs to pick up because countries grow when the private sector really grows.
05:39 The government is here to facilitate that process but cannot substitute the private sector's growth potential.
05:48 It can crowd in, the public investment can crowd in private investment, but ultimately private investment has to be powering the growth process.
05:56 Now we're seeing a lot of growth coming from private consumption.
06:00 The next stage will be to see growth coming also from private investment.
06:10 For that to happen, there are a few things.
06:12 In addition to public investment, you need some policies to stimulate private investment.
06:17 You need policies to make it easier for the private sector to have access to land, for example, to hire people more easily,
06:23 to have international connections through the global value chain and through import and export more easily.
06:30 There are a number of reforms that could facilitate that.
06:33 The second big thing that would be needed for growth to reach 8% and be sustained at that level is on the employment side, on the labor side.
06:42 We hear that firms sometimes struggle to find the right skills at the right place at the right time.
06:50 Now there are a lot of skills in India, a lot of Indian skills also globally.
06:54 With no skills, there is no dearth of skills.
06:57 But maybe the right skills are not in the right place at the right time.
07:01 So investing in skilling through the ITIs or through skill centers in states, including in states that are struggling to produce those skills
07:13 or that are struggling to retain them, investing in that would make it easier for firms to also go to those places, those states and invest there.
07:21 And those places may offer the highest possible return on capital if you have the right skill.
07:26 And that will add to India's growth potential in the long term.
07:30 So these two things, private investment and the skill side, if they come together,
07:36 we think that it will be very easy for India to achieve 8% and sustain it.
07:40 Right. So while we focus on the potential that the Indian economy has,
07:44 currently if you look at the state of the Indian economy, you've said that it's doing pretty well.
07:49 But if I ask you this for a simple understanding of our viewers,
07:53 if you have to point out two or three pain points for the Indian economy currently
07:57 and two or three things or aspects that are going right for the Indian economy.
08:01 So if I have to put it simply, what's going right, a couple of points on that,
08:05 and what's going wrong with the Indian economy currently.
08:07 Okay. So what's going right?
08:11 I mentioned earlier India has a very strong macro framework.
08:18 India's macroeconomic fundamentals are very strong.
08:22 You know, various aspects.
08:25 There is a strong fiscal consolidation path that's happening,
08:29 helped by GST, which is a very good reform.
08:34 It's now producing healthy revenues for the government,
08:38 which combined with fiscal discipline on the expenditure side,
08:43 especially on the government consumption side,
08:45 is helping achieve fiscal consolidation while still maintaining space for more public investment.
08:51 This is very strong.
08:55 India has very strong reserves, foreign exchange reserves.
09:00 We hear that, or we know, data tells us,
09:03 it's one of the largest foreign exchange reserves in the world.
09:07 This means that the global headwinds and the volatility that we see in the world,
09:13 that put pressure on the currencies,
09:15 India can manage that a bit more easily than countries that do not have that kind of reserves
09:20 and that kind of cushion.
09:23 Similarly, the financial sector in India is improving.
09:28 The strength of the financial sector now compared to a few years ago is like night and day.
09:34 The banks have improved their balance sheets.
09:37 The corporate sector, by the way, has also improved its balance sheet.
09:41 Non-performing assets have come down now at 3.3%, which is very healthy.
09:49 Related to that, we see credit growth picking up.
09:54 There are a lot of positives on the macro financial sector side.
09:59 It's very strong.
10:01 I would say the second thing that is going really well for the Indian economy is,
10:08 well, it's hard to limit the list to two.
10:11 You can take the liberty to go on.
10:13 But public investment is very strong and it's really very good.
10:17 And it's needed. India has big ambition for the national investment pipeline.
10:22 It's impressive. It's huge.
10:24 It's very ambitious.
10:26 And the government is showing that through high public investment,
10:30 India can march toward achieving the goal of the national infrastructure pipeline.
10:34 Of course, private investment will need to be crowded in at some point and fairly quickly.
10:39 A third thing I will add is the services sector.
10:43 We all tend to say, and I will still maintain that,
10:46 countries need a strong manufacturing sector, a strong industry to grow.
10:51 But we also can do very well with a strong services sector.
10:54 And India has been doing very well.
10:56 The services sector is growing fast and is a top performer on the export side.
11:02 And linked to that is India's success in IT and technology and the DPI,
11:08 the digital public infrastructure.
11:13 That is supporting a dynamic and modern services sector, especially on the export side.
11:20 The world knows India for very good services export, supported by DPI.
11:27 Maybe I'll close by saying that digital public infrastructure is not just for export.
11:34 It has also helped improve services or service provision by the public sector.
11:40 It has helped reach many vulnerable people, especially during COVID,
11:44 providing them with public support, public assistance.
11:47 And it has also helped improve financial inclusion, which is very important.
11:52 So a lot of things are going on well.
11:56 On the second part of your question, I wouldn't say that there are things that are going wrong.
12:02 I would simply say that there are things that could be improved.
12:06 The issue is India's income per capita is not very high yet, as you mentioned earlier.
12:13 It is at a low-middle-income category.
12:18 Middle income is good, low-middle income is good too,
12:21 but India wants to become an upper-middle-income country, which is fair and actually normal.
12:26 And India wants to become a high-income country.
12:28 But for that, as we said, growth needs to be higher than 6.3%,
12:32 especially if India wants to achieve those goals by 2047.
12:35 So what can be done better? What can help?
12:40 I mentioned a few areas.
12:42 So they're not going wrong, but the areas that could do better,
12:46 private investment, on skills side, female labor force participation,
12:51 I think for me it's the lowest hanging fruit.
12:54 In fact, it's perhaps the area that hurts the most, growth in India.
12:59 Because India's female labor force participation is at 25%, according to some statistics.
13:05 According to the same statistics, the average is 50% for countries at India's income level.
13:11 And we estimate that if India's female labor force participation were to grow from where it is today
13:17 to reach the average for India's comparators, that alone would add one percentage point to growth.
13:23 So meaning instead of 6.3%, we would have been forecasting 7.3% or 7.5% growth rate, just by doing that.
13:32 Just if women have the equal representation in the workforce?
13:35 Not even equal representation.
13:37 A higher representation.
13:38 A higher representation to match the level that other countries at India's income per capita have.
13:43 If women were to have equal representation in the workforce,
13:47 female labor force participation in India would be more than 60%,
13:50 which is where male labor force participation is today.
13:54 That would add maybe two percentage points to growth.
13:57 Just by that, just reaching equality would mean India would reach the 8% growth rate that is needed.
14:05 There's some safety issues, there's some safety factors which make women choose not to work.
14:11 So if those can be addressed, then the supply of labor from women will increase dramatically
14:17 to reach parity maybe, and then the economy will grow at 8% without additional effort.
14:23 And of course there will be additional effort too from the private sector,
14:26 which means the economy might grow even at 9%, who knows.
14:29 Let's talk about the cost of living crisis and inflation now.
14:32 That is a major challenge, not just for India, but for major economies around the world right now.
14:37 If you could explore a bit on whether enough has been done.
14:41 We know the Reserve Bank of India was consistently raising interest rates the last year,
14:45 but for the last two meetings they haven't, and they say that inflation is coming down.
14:50 But for the last two months we've seen it has been above the 6% target of the Reserve Bank.
14:55 From the government side there have been steps, but they've not been steps that will give direct benefits,
15:00 as in tax cuts or excise duty cuts on fuel, which we've seen in the past few years,
15:04 which have been the government's decisions earlier when we've seen such skyrocketing inflation.
15:09 So do you think enough has been done on inflation front, both from the RBI side
15:13 and from the government side, and do you think more can be done?
15:17 What we're seeing in our numbers, in our data, is that yes, inflation picked up in July,
15:23 and in August it went down a bit, right?
15:26 So maybe there is a trend of decline.
15:29 So if I were a policymaker, maybe I'd want to wait a bit before taking drastic actions.
15:36 And secondly, I would think that one should look at what feeds into inflation.
15:44 When consumers see inflation it hurts. Nobody likes inflation.
15:50 As a consumer I don't want to go to the supermarket and see higher prices today than I saw yesterday.
15:55 It doesn't make you feel good. It makes you feel like, why are they doing that to me?
15:59 So nobody likes inflation.
16:02 But we need to look at what is feeding into inflation, and when we look at our numbers,
16:06 what we see is that on the producer side, prices are low.
16:11 The wholesale price indexes have a different dynamics than the consumer price index.
16:19 So hopefully, perhaps in the next few months or so, because wholesale price indexes are low now,
16:25 maybe they will feed into reduced inflation on the consumer side. Hopefully.
16:30 On the other side, we see that global commodity prices, which improved recently, may pick up again.
16:39 We're forecasting oil prices at $90 a barrel.
16:42 So that could feed into high inflation on the consumer side.
16:46 So there are a lot of dynamics and a lot of uncertainties.
16:50 What I might be able to say is that we are in a high inflation environment globally.
16:57 It will take a while for global prices to come down.
17:01 I don't know how long that while will be. It could be a few months. It could be a year.
17:06 And all countries, including India, will see the impact of that.
17:11 The cost of living crisis or inflation is not just an India problem.
17:14 And 2024 is a very important year, both for politics and economy,
17:19 because the election is coming up in India, in the United States, in Canada, in Pakistan.
17:24 So would you, as the country head for the World Bank here,
17:28 say that inflation and price rise needs to be a priority ahead of these very important elections,
17:36 which will change how these countries are governed, specifically for India?
17:40 For us, whether there are elections or not,
17:44 inflation, because we know it hurts the poor more than the rich.
17:49 In a world of inequality, inflation hurts everyone, but it hurts the poor more than the rich.
17:56 At the World Bank, we think, therefore, that inflation should be a concern.
18:01 And by the way, it's a fact that we don't talk much about, but we need some inflation.
18:09 And you may be surprised to hear that.
18:11 An economy that has zero inflation or negative inflation,
18:15 it may be good for a year or two, but it's not good for the long term.
18:20 You need some inflation to create incentives for savings, for growth, for investment,
18:28 for many good things that we get in the economy.
18:31 But you don't want too much inflation.
18:34 You don't want too much of it.
18:36 So we think at the World Bank, high inflation is really not good.
18:40 First, because it hurts the economy.
18:45 It creates risks for the future.
18:47 It can detract from growth.
18:49 But more importantly, because we think inflation is regressive.
18:53 Regressive meaning it hurts the poor more than the rich.
18:58 And this is regardless of whether you are in 2024 or election years or not.
19:03 And you've said that you don't want to comment on politics.
19:06 I'll keep that aside.
19:07 But one aspect that is related to politics, but that is a very important economic aspect for any country,
19:15 in an election year, is the issue of freebies.
19:18 Do you think that's a good economic decision?
19:21 Not going into the politics, but of course you would know that in elections,
19:25 you have parties announcing that we'll have free travel for women, we'll have free ration.
19:30 I'll take free travel for women, any time.
19:33 But more of these measures are announced and free travel, they have their advantages.
19:39 It's a security move for women.
19:41 And free ration, free health services, which we see is the case in developed countries like New Zealand and other countries.
19:47 Is it a good economic decision to spend that kind of money on these so-called freebies?
19:52 What I think is a good economic decision is the fact that there is a cap on states' fiscal deficit.
19:59 And the cap is 3%.
20:01 So that's good because it means the state cannot spend more and have a bigger deficit than 3%.
20:10 So this is a good decision.
20:13 Beyond that, what they do within the 3%, it varies from state to state.
20:18 States may decide to invest in roads or invest in power, electricity, power plants, renewable energy,
20:27 or provide more social services because people actually need it.
20:31 Provide more protection for women, which is good to have.
20:36 So it depends on what the states need.
20:38 And I don't know whether these needs vary from election year to non-election years or not.
20:43 But I think this is a state-level issue as long as the 3% fiscal deficit cap is maintained.
20:50 I'm not saying that we should be in a country where people get everything they want regardless of effort they make.
21:00 Sometimes supporting social services can be good because you need that to create more opportunities
21:06 for the weaker people among us, for the lower-income people to have a chance to also contribute to growth.
21:15 And sometimes it's also important to provide infrastructure investment that may look like it's benefiting from rich people
21:23 because you may build airports or roads that can be used only by high-income people.
21:29 But this may also be good to power growth.
21:32 So I don't have a blanket answer to say providing social services or freebies is good or bad.
21:40 It really depends on where the states are.
21:42 That's fair what you say. Thanks very much Mr. Kwame for joining us.
21:45 So as you heard, it's the World Bank Country Director Mr. Kwame telling us that the Indian economy is doing well
21:51 but there are several challenges and a lot of aspects that we still have to work on to be able to achieve our full economic potential.
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