IMF chief Lagarde calls for growth-supportive monetary, fiscal policies

New Delhi: Appreciating continuing reform process in the country, IMF chief Christine Lagarde on Saturday said "India's star shines bright" amid global economic challenges and can deliver nearly two-thirds of the worldwide growth over the next four years despite a slowing momentum.

The world's fastest-growing large economy, she said, is on the verge of having the largest and youngest-ever workforce and, in a decade, set to become the world's most populous country. "So, India stands at a crucial moment in its history -- with an unprecedented opportunity for transformation. Important reforms are already under way," the IMF Managing Director said at a conference on 'Advancing Asia: Investing for the Future' here.

"Think, for example, of Make-in-India and Digital India. And with the promise of even more reforms to come, India's star shines bright." The conference is being organised by the Ministry of Finance and IMF, which was attended by Prime Minister Narendra Modi.

Recalling that India and IMF go back a long way together -- India was a founding member of the Fund more than 70 years ago -- Lagarde said Asia is the world's most dynamic region and today accounts for 40 per cent of the global economy.

"Over the next four years, even with a slightly declining momentum, it stands to deliver nearly two-thirds of global growth," she added. Lagarde, who got reelected for the second term as chief of the Washington-headquartered International Monetary Fund (IMF), pointed to the global economy facing many challenges.

These challenges, she said, include volatile markets and capital flows, economic transitions and financial tightening in many countries, the large drop in commodity prices, including oil and escalated geo-political tension.

Earlier this year, Lagarde had said quota and governance reforms came into effect that enhanced the representation of emerging Asian economies within 188 member countries. "One consequence is that India now joins China and Japan among the Fund's top 10 shareholders," she said.

Lagarde further said that in about 10 days, India, Nepal and many other countries will be celebrating Holi (festival of color), which heralds the coming of spring. "I am not suggesting that we cover each other with colour or spray water as is customary (we will leave that to children).

But I do think today we should celebrate India's achievements — and Asia's achievements," she said, adding that "Asia has a lot to be proud of". Stressing that making the most of Asia's dynamism is of great interest to the entire world, she acknowledged that Asia's rapid integration into the world economy has been one of the most striking global developments of the last generation.

In that relatively short time, many countries across this vast and diverse region have achieved economic "miracles", and many have become powerhouses of the global economy. For the past 25 years -- the Asian crisis notwithstanding -- the region's economy has grown by around 6 per cent a year. In the aftermath of the recent global financial crisis, Asia was a rare bright spot, Lagarde said.

"This region's dynamism presents a historic opportunity to invest now in the future -- and to advance Asia. Doing so will not only put Asia on the path to sustained growth, but also strengthen its role in the global economy -- as a key contributor and as a leader for the 21st century," she stressed.

She also spoke of empowering women as an essential element -- whether by enhancing girls' access to high-quality education, dismantling legal and logistical barriers to economic participation, or making it more practical for women to combine a job and a family. "An initiative of Prime Minister Modi's government, for example, is to improve women's welfare services under Beti-Bachao, Beti-Padhao," the IMF MD said.

According to the IMF MD, economic transformation in Asia has supported social development. Over the past 35 years, the region has been the world's leader in reducing poverty. Education and health outcome has improved significantly, she said, adding that people's living standards have been raised.

"Asia has also become a byword for innovation. Each day, almost everyone around the world is touched by Asian technology. Cars, smartphones and televisions spring to mind, but think also of biotechnology, commercial satellites, and renewable energy," she said.

This increased inter-connectedness means that Asia now affects the world more than ever before; by the same token, Asia is now more deeply affected by global economic developments than ever before -- and must respond to them, she said. Amid global economic challenges, what should be Asia's response?

Lagarde listed out some broad areas for action -- supportive monetary policy consistent with price and external stability objectives, growth-friendly fiscal measures and macro-prudential measures to safeguard financial stability.

"The policy specifics, of course, vary across countries and according to circumstances. In all cases, however, it is safe to say that structural reforms are key to boost competitiveness, growth and jobs," she said. Referring to India, Lagarde stressed on enhancing the efficiency of product markets, encouraging private investment and improving infrastructure.

In the case of China, she put a premium on improving the allocation of credit to help rebalance the economy away from the debt-led investment. For many countries from emerging markets to low-income nations, the IMF MD highlighted the need for strengthening the business environment and developing bond markets.

"Successfully dealing with these kinds of structural issues will not only support Asia's near- and medium-term prospects, but secure the foundations on which to unlock the region's exciting future potential," she said. Talking about "unlocking Asia's potential", Lagarde said broadening access to services like health and finance is essential and so is leveraging the impact of fiscal policy and empowering women.

"... challenges are daunting -- and yes, I am convinced that Asia can meet them. I have visited Asia many times, and I have always been struck by the vibrancy, energy, and can-do attitude of its people," Lagarde said. "They have shown the world before what Asia can achieve -- and they will show the world again." In 2018, Indonesia will host the IMF Annual Meetings, she announced.