IMF Head sees India driving global growth in next 2 years

23 Feb 2023 , 01:23 PM

No less a person than Kristalina Georgieva, Managing Direction of the International Monetary Fund, in a recent blog titled “Policy Priorities for the G20”, named India as the bright spot. Kristalina expects the Indian economy to be the fastest growing large economy in the world by a margin in 2023 and 2024. Mirroring the IMF enthusiasm about India, Ms Georgieva has underlined that 15% of global growth in 2023 and 2024 would only come from the Indian economy. First a quick look at the IMF projections of real GDP growth rates for 2023 and 2024.

IMF WORLD ECONOMIC REPORT GROWTH PROJECTIONS
Country	2021 (Actuals)	2022 (Estimates)	2023 (Projections)	2024 (Projections)	2023 (Change)	2024 (Change)
Argentina	10.4	4.6	2.0	2.0	0.0	0.0
Australia	5.2	3.6	1.6	1.7	–0.3	–0.1
Brazil	5.0	3.1	1.2	1.5	0.2	–0.4
Canada	5.0	3.5	1.5	1.5	0.0	–0.1
China	8.4	3.0	5.2	4.5	0.8	0.0
Egypt #	3.4	6.6	4.0	5.3	–0.4	0.1
France	6.8	2.6	0.7	1.6	0.0	0.0
Germany	2.6	1.9	0.1	1.4	0.4	–0.1
India #	8.7	6.8	6.1	6.8	0.0	0.0
Indonesia	3.7	5.3	4.8	5.1	–0.2	–0.3
Iran #	4.7	3.0	2.0	2.0	0.0	0.0
Italy	6.7	3.9	0.6	0.9	0.8	–0.4
Japan	2.1	1.4	1.8	0.9	0.2	–0.4
Kazakhstan	4.1	2.5	4.3	4.4	–0.1	–0.1
Korea	4.1	2.6	1.7	2.6	–0.3	–0.1
Malaysia	3.1	6.7	4.4	4.9	0.0	0.0
Mexico	4.7	3.1	1.7	1.6	0.5	–0.2
Netherlands	4.9	4.2	0.6	1.2	–0.2	–0.5
Nigeria	3.6	3.0	3.2	2.9	0.2	0.0
Pakistan #	5.7	6.0	2.0	4.4	–1.5	0.2
Philippines	5.7	7.0	5.0	6.0	0.0	0.0
Poland	6.8	5.4	0.3	2.4	–0.2	–0.7
Russia	4.7	–2.2	0.3	2.1	2.6	0.6
Saudi Arabia	3.2	8.7	2.6	3.4	–1.1	0.5
South Africa	4.9	2.6	1.2	1.3	0.1	0.0
Spain	5.5	5.2	1.1	2.4	–0.1	–0.2
Thailand	1.5	3.2	3.7	3.6	0.0	0.0
Türkiye	11.4	5.5	3.0	3.0	0.0	0.0
United Kingdom	7.6	4.1	–0.6	0.9	–0.9	0.3
United States	5.9	2.0	1.4	1.0	0.4	–0.2

Data Source: IMF (# refers to fiscal year other than calendar year)

What do we infer from the above table. The Indian economy is likely to be the fastest growing in the world in the next two years. In 2023, India is expected to grow at 6.1% followed way behind by China at 5.2%. In FY24, India is expected to grow at a much healthier 6.8%, with only the Philippines expected to grow at 6% and China growth falling sharply to 4.5%. According to the IMF, these two years of GDP growth would give the Indian economy the much needed momentum to boost its GDP from the current level of $3.5 trillion to its short term target of $5 trillion. This is normally considered to be a tipping point for exponential growth in any economy.

Emerging markets to outstrip developed market growth

In a sense, Kristalina Georgieva has pointed out that the pandemic may have been a return to the pre GFC reality. For instance, prior to the global financial crisis (GFC) of 2008-09, the EMs were growing at a much faster rate than the DMs. However, post the financial crisis, it look much longer for the emerging markets to pick up steam. During the period between 2010 and 2019, it was the DMs that were doing better than the EMs. However, post the pandemic, it looks like the balance of power is once again shifting in favour of the emerging markets as evidenced by the table below.

Share of incremental global growth in real GDP
Year	Advanced Economies	EM Economies
2021	34%	63%
2022	33%	67%
2023	18%	82%
2024	19%	81%

Data Source: IMF

The IMF almost appears to be emphatic that going ahead the incremental growth is likely to be driven more by the emerging market economies. This trend is already favouring the EM economies in the ratio of 63:37. However, by 2024, this is likely to tilt more in favour of emerging market economies in the ratio of 81:19. When it comes to driving real GDP growth, the IMF boss is clearly betting very big on emerging markets to drive growth over the next couple of years. In fact, the global growth is likely to rebound from 2.9% in 2023 to 3.1% in 2024, largely driven by EM economies in general and India in particular. That should surely be an economic high point for the Indian economy.

Kristalina Georgieva is a lot more positive on India

In her blog on the IMF website, while congratulating India on hosting the forthcoming G-20 meeting in Bengaluru, Kristalina Georgieva has not only lauded India for its expected growth in the coming years, but also for its other key contributions. Here is what the IMF Managing Director highlighted in her blog.

1. Kristalina highlighted that even today nearly 350 million people in over 79 countries face acute food insecurity. Here she lauded the free food program that India had started after the COVID pandemic and sustained for a period much longer than the pendency of the pandemic. It ensured that, despite the fiscal costs, the people were able to get back into economic action very quickly.

    

2. One risk in such free food policies is that it may continue to impose a huge fiscal cost on the economy. Here again, Ms Georgieva has pointed out to the adept signals given by India on the fiscal deficit front. It may be recollected that India cut its fiscal deficit target for FY24 to 5.9% from a high of 9.5% during the pandemic with a promise to cut this fiscal deficit further to the 4.5% levels by 2026.

    

3. The IMF managing director has also pointed to the area of inflation control. While the headline inflation may yet have to come down, it must be said that the aggressive hawkishness shown by the RBI has been instrumental in arresting the spike in inflation. Kristalina Georgieva has specifically lauded Indian macroeconomic policy for using hawkishness to curb inflation, without impacting the levers of GDP growth.

    

4. Another aspect that she highlighted in the blog is the need to move towards green and clean energy. This is again an area where India’s specific role has been highlighted. Not only has India emerged as among the top 3 countries in solar and renewable capacity, but has also laid out aggressive plans by the private sector to invest in green hydrogen, lithium ion batteries; with a highly supportive PLI (production linked incentives) policy.

    

5. An interesting observation made by Kristalina Georgieva in her blog is on the need for leveraging digitization and financial inclusion for reaching out benefits. Nothing, according to the IMF managing director, exemplifies this success better than the UPI (unified payments interface), which has been a great success here. In India, UPI may have made 8 billion transactions, but more importantly, it has allowed 400 million people in rural India to participate in the financial market mainstream.

Now for the parting words of the IMF managing director. She quotes Gurudev Rabindranath Tagore, “You cannot cross the sea by merely standing and staring at the water”. Apart from growth and hope, Kristalina Georgieva believes that India has provided leadership to the G20 in terms of real action. That is worth its weight in gold.