'More female workers will help boost growth'

The World Bank's recent estimates suggest that India will be the fastest growing major economy this year. The agency's India-born chief economist Indermit Gill, who studied at St Stephen's College and Delhi School of Economics before moving to the US, and Ayhan Kose, chief economist for the Equitable Growth, Finance, and Institutions and director of the Prospects Group, spoke to TOI on challenges confronting the global economy and how India could sustain the pace of expansion. Excerpts:

How long do you expect the global slowdown to last?

Kose: The global economy is in a very difficult spot, given how weak this year's growth is, 1.7% - this is the third-lowest growth rate since the early 1990s. In near term, the big challenge will be inflation. As long inflation remains elevated, we will face difficulties. Central banks will continue tightening or will keep interest rates high. This year, inflation is going to moderate at the global level from around 7.6% to 5% or below. But the question is, when will it go towards 3%, the number prior to the pandemic? The other big issue is geopolitical tensions and how it affects fragmentation of global trade, global investment networks, global financial networks. There is significant uncertainty on inflation and geopolitical turbulence. We are expecting growth to come back in 2024 if we see inflation coming down.

What does it mean for developing and poorer countries?
Kose: Growth in emerging economies is going to be around 3.4%, somewhat similar to last year. China's growth number was one of the lowest in 50 years and that should accelerate this year, especially in the second half. India, of course, is delivering the highest growth among major economies this year. Elevated inflation reduces purchasing power. The poorest get hit hard when the cost of living increases, government revenues decline. They need to be very careful on fiscal policy and they need to have targeted fiscal policies, thinking about the poorest segments. But that's also difficult in an environment when cost of borrowing is high. When you have this type of environment, you are unable to raise necessary resources for health expenditure, education, expenditure for infrastructure. So, the picture is very difficult.

What are the implications on debt restructuring, which is an issue being discussed at G20?
Gill: The G20 common framework for debt resolution is a very important arrangement, but it has not been working very well. There is a big chance for India to solve that problem for low- and middle-income countries that are getting into a debt crisis, because India is doing well economically and because India has the G20 presidency. The structure of debt has changed a lot and debt-restructuring mechanisms have not changed enough and India can help nudge those things to make sure that the way we resolve debt becomes quicker, more balanced and more adequate.

India is seeking to position itself as one of the production hubs through schemes such as production-linked incentives. Will India be among those locations?

Gill: There are three areas of sensitivity - medicines, semiconductors and then solar panels and batteries. India has a plus and minus side on medicines, given that there is a lot of concentration in India and China. Some countries may think they depend too much on India already. Some unrelated actions, such as export restrictions, are seen as countries from which you need to diversify away from. The kind of things you do with wheat and others is very important. Second, when you look at climate action, China's role is massive given its share in manufacturing of wind turbines, solar modules and storage batteries. That's where the potential for a country like India is massive. India can use it for itself and exports.

How does slowdown in advanced countries impacts exports and overall growth in India? What are the other challenges to faster growth?

Gill: If India wants to become an upper middle-income country by end of the decade, it needs to grow at 7% and double its income. Much of India's growth will be affected by domestic factors - things like infrastructure, regulatory reforms, female labour force participation (FLFP). Increases in FLFP dwarf the others. There are some real big advantages that India has. It has done rather well on digitalisation, and in a way that it helps not just the poverty goal but FLFP. Countries that have done well in FLFP have done well in light manufacturing, such as computers and apparel. India could do a lot better on that. For India to grow at 7%, it has to grow in agriculture, manufacturing services - it's too big a plane to fly on one engine. It has to do a lot better in agriculture, somewhat better in manufacturing and better in services too.

How big is the job challenge?

Gill: Ultimately, demand for labour is derived demand. So, demand for goods and services has to increase. Indian firms cite uncertainty and size of demand as an issue. A general focus on growth is super important. India has done a good job of modernising the social protection system. Those lessons will be very valuable for countries, including some with higher income.

There is a big debate on freebies in India and defined benefit pension. Do governments need to be more conservative on free power?
Gill: On defined benefit pension (old pension scheme), the world has moved to defined contributions pension. One can always think of a very low threshold such as poverty-related, which can be a defined benefit pension. You need that for poverty prevention, but that has to be very modest. Otherwise, you won't have too much money on education and health, infrastructure, which will kill growth.

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