India bright spot in global economy: IMF

Washington, April 5

With strong growth and rising real income, India remains a bright spot in the global economy, IMF chief Christine Lagarde said today.

In her major policy address, Lagarde said overall, the global outlook has weakened further over the past six months — exacerbated by China's relative slowdown, lower commodity prices and the prospect of financial tightening for many countries.

Emerging markets had largely driven the recovery and the expectation was that the advanced economies would pick up the "growth baton".

"That has not happened," the International Monetary Fund (IMF) managing director said in her address 'Decisive action to secure durable growth' at Goethe University, Frankfurt in Germany.

While emerging markets are a very diverse group, the story is broadly similar. China's transition to a more sustainable economic model — which is good for China and the world — means that its growth rate, while still strong, is lower. Downturns in Brazil and Russia are larger than expected, she said.

"The same is true for the Middle-East — hit hard by the oil price decline. Many African and low-income nations also face diminished prospects.

"India, by contrast, remains a bright spot — with strong growth and rising real incomes," she said.

The ASEAN-5 economies — Indonesia, Malaysia, the Philippines, Thailand and Vietnam — are also performing well, while countries such as Mexico continue to grow," Lagarde said.

She said regarding fiscal policy, for most countries the issue is how to make policies more growth friendly.

This can be done by shifting the composition of revenue and expenditure.

"India, for example, has reduced spending on costly energy subsidies so it can invest more in growth-enhancing social infrastructure. Japan is investing in childcare to help more women work, which will boost growth over the medium term," she said.

"And Germany is implementing last year's plans to expand public investment by Euro 17 billion in the years 2015-18 and will also provide labor tax relief in 2016," she added.

According to Lagarde, for advanced economies, risks relate to longstanding crisis legacies—high debt, low inflation, low investment, low productivity and for some high unemployment.

In some countries, balance sheets of banks and increasingly non-bank financial institutions are strained by non-performing assets and low operating profit margins.

For emerging and developing economies, risks relate to rising vulnerabilities — lower commodity prices, higher corporate debt, volatile capital flows and — for some countries — de-risking and reduced bank lending. — PTI