Exclusive: India will continue to rank among the top 3 fastest growing nations, asserts IMF chief Lagarde

The IMF chief says GST benefits for India will depend on simplification of tax laws 

Bali (Indonesia): In a mega exclusive interview with ET NOW’s Supriya Shrinate, IMF’s Managing Director Christine Lagarde urges global leaders to fix and not destroy global trade. She also spoke about shock absorbers that can be put to reduce pain in emerging markets. Gita Gopinath, is an exceptional talent and which is why she made the cut as IMF’s first woman Chief economist. Responding to The #MeToo movement exploding in India, Lagarde asserts a higher number of women at work besides stringent laws will check sexual harassment. 

Six months back while talking about global growth you had said clouds of risk are along the horizon. Have your worst fears come true?

I said successively the sun is shining fix the roof, that was a year ago. Six months back I had said exactly that, watch out clouds are on the horizon it’s time to fix the roof. We are now watching some of those clouds opening up a bit and it’s not pouring yet but it has certainly begun to drizzle. 

The drizzle is obviously the trade tension that the world is seeing. In your opening address here at IMF, you quoted Adam Smith “Commerce, which ought naturally to be among nations, as among individuals, a bond of union and friendship, has become the most fertile source of discord and animosity .” You have urged world leaders to fix global trade and not destroy, how hopeful are you that they will pay heed? 

Trade, when it works, is a win-win game and it’s also a game which has to include everybody. It’s a topic that we should have paid more attention to and we should now in relation to trade and tech. I hope tensions will de-escalate because players will appreciate the virtue and sit around the table to fix global trade and not destroy it. That is my key message- de-escalate, fix do not break.

Is there a new multilateralism that the world needs to come to terms with?

Yes, there is a new multilateralism that the world needs to get used to. It is an order where growth has to be more inclusive, growth has to be sustainable and there has to be more cooperation. Inclusive growth is important because if you have a system where by virtue of either trade, technology or policies capital is favoured over labour, people will feel excluded disenfranchised and no longer masters of their destiny so we can’t produce cohesive, harmonious society. Sustainable growth is important because we have just one planet, we better make sure it is safe for us and our children. Cooperation is key because these problems won’t solve solo, it has to involve all members. 

I want to turn the focus from global trade tensions to Emerging markets. The IMF has asserted that EMs will see capital outflows not seen since the last decade. We are already witnessing market corrections and sharp weakness in currencies including in India. How do you see this pan out, how long will pain last especially given the fact that higher interest rates in the US is a reality now?

The risk of outflows that you refer to isn’t happening right now, it’s a risk right now. It could materialize but hasn’t yet. That said, it is a new reality and we have to collectively cope with it. Because when a country like US will see higher growth, inflation rising, unemployment at rock bottom clearly there will be monetary tightening and these interest rates will impact financing flows and financing cost and this will determine capital flows. We need to prepare for that and now is the time to do it. Which is why I have said steer the boat don’t drift. Measures can still be taken and shock absorbers can be put to deal with this new reality.

Not too long back the IMF had called India a sweet bright spot in the world economy, but rising crude, higher outflows, weak rupee and a potential twin deficit problem seems to be pointing in direction of macro headwinds. How challenging does it look? Has some of that brightness turned dull?

Indian economic growth will continue to be in the top 3 if not the highest. There is significant growth happening, supported by many ingredients. But it is also an economy with its own vulnerabilities. The fact that India is dependent on imported oil and prices are going up at the moment, is a clear vulnerability that must be raised. 

India’s CAD right now is a more structural problem, especially given how growth and consumption both are import dependent, and which is why some import restrictions have been put. Now, while we are WTO compliant, is it worth a bet making in terms of messaging. Do we risk being seen joining the protectionist chorus? Does that concern you? 

Anything that raises protectionism or erects barriers to trade worries me. I believe trade has been extremely beneficial, lifted people out of poverty, reduced cost of living for many people, particularly the low-income groups. It has boosted productivity and improved innovation. So we need to hang on to those benefits and not begin raising barriers and tariffs. 

The Modi government ushered in structural reforms like GST, IBC. The IMF has lauded those but had also said India needs land and labour reforms to move to the high growth trajectory. How hopeful are you of these reforms given we are less than a year away from General elections and these are politically tough measures to take?

I think the government particularly Finance Minister Jaitley have been very determined, decisive and courageous in rolling out GST. I hope the benefits will begin to show soon especially how it simplifies tax laws. Bankruptcy reform was critical too. So I would hope whether it’s now or in the short term there will be a will to bring in crucial reforms like land and labour. I share your concern pre-election period isn’t a great time to touch upon sensitive reforms that touch upon ownership and labour laws. 

Madam Lagarde, you have recently appointed Gita Gopinath as the first woman and the second Indian as IMF’s Chief economist, thrilled not just because she is an Indian but I think it’s important for more powerful women in positions of influence. What made you choose her? 

She is a terribly talented economist. She is such an impressive human being. She happens to be a woman and am very proud that finally IMF has a Chief economist who is a woman but she is unbelievably talented. She has multiple interests, resources and intellect that will take not just take the research department of IMF but the institution itself into a direction that will better serve the members. She is highly motivated to join us and we are thrilled that she is coming on January 3rd.

After US, MeToo seems to be exploding in India as well with many women taking to social media and sharing their horror stories and pain. What do companies and organizations need to do to tackle sexual harassment at work more decisively? How can offices be made safer, fairer and a place of pride?

You have to start with eliminating discrimination and promoting women. The more women there are at the top and at all managerial level of an institution the less of horror stories there will be. I would also say that having legal provisions available to fight harassment is important and will help. India has a legal system in place and respects the rule of law. There needs to be greater adherence to anti-harassment provisions. 

Does Me Too risk triggering a NotHer in workplaces? The concern is that many companies may be reluctant to hire women. 

If that were to happen those companies will lose a lot of talent. These companies won’t be able to access and tap into a workforce that’s super qualified, very efficient and determined to offer their contribution. Even if only driven by economic benefits, I hope companies will not go down that path.