The twin Bretton Woods institutions, the World Bank and the International Monetary Fund (IMF) that largely shaped the global economy’s shared prosperity in the post-World War II phase for most of the latter half of the last century, today no longer hold such a unique sway, particularly after the globalisation process got short-changed at the early years of the 21st century! Still as a founder member, their salience has seldom been doubted by India, for its quest for Viksit Bharat by 2047, as is being bruited quite often by the NDA government led by the Prime Minister Narendra Modi.
It is in this backdrop that both the World Bank and the IMF have come out with India-specific reports individually late last week of February in Washington that makes policy planners and economists to sit up and sift their suggestions. First, in its report ‘Becoming a High-Income Economy in a Generation’, the Bank economists said India needs to grow by 7.8 percent on average over the next 22 years to achieve its aspiration of reaching high-income status by 2047. For this to happen, Emilia Skrok and Rangeet Ghosh, co-authors to the report, said, “India can take advantage of its demographic dividend by investing in human capital, creating enabling conditions for more and better jobs and raising female labour force participation rates from 35.6 percent to 50 percent by 2047” — a feat easier said than done unless the entrenched obstacles to such enlightened pathways are systematically and sedulously removed by the authorities—both political and the administrative with will as well as the wherewithal!
Considering the fact conceded in the report itself that in the past three fiscal years India has accelerated its average growth rate to 7.2 percent, the report catalogued critical areas to address and act with tact so as to sustain this speed and score an average growth rate of 7.8 percent, in real terms (meaning discounting the probable pesky inflation rate) over the next two decades. The issues to redress, the report said, range from “increasing investment (both public and private), fostering an environment to create more and better jobs, promoting structural transformation, trade participation and technology adoption to enabling States to grow faster and together” in a spirit of cooperative federalism, a desirable proposition that seems to have jaded after the main ruling party BJP lost its single-party rule at the Centre in 2024 with States increasingly getting restive and vocally pleading for space to grow!
IMF, as part of its remit to monitor the economic and financial policies of its member country and providing with policy advice, an activity made known by the Fund as surveillance in a weird word (not in the contemporary connotation!), released the contents of its Staff Appraisal Report on February 27 in Washington. While broadly endorsing India’s prudent economic policies that underpinned the economy’s resilience, it forecast India’s growth to recover “from a recent softening and inflation expected to converge to target” as set by the Monetary Policy Committee of the central bank, the RBI. It, however, laced its optimism with a qualifier that “risks to the outlook include deepening geo-economic fragmentation and a slower pace of domestic demand recovery”.
Being billed as a lender of the last resort, IMF is duly qualified to proffer suggestions in improving the financial landscape that is the fulcrum of the economy to operate sans hassles and hurdles. This is particularly so when policy inertia or persisting uncertainty because of lack of cooperation between allies or support from the Opposition could stymie development strategies and the building up of infrastructure, both physical and social. As attracting investment requires policy framework to foster a stable milieu for firms and households that can be ensured through tax and regulatory certainty, the Fund has zeroed in on improving the judicial system. Hence, it underlined the expeditious need to ramp up judicial capacity where large case backlogs and insufficient resources pose notable impediments, a biting reality that the governing class needs to pay heed to. This also entails further improving the functioning of the Insolvency and Bankruptcy Code (IBC), a reform the NDA government has been given to tom-tom, despite its operational glitches and slow progress in freeing up locked assets for getting them monetised for new activities across the real sectors of the economy over the years.
The Fund’s contention to strengthen credit markets, “not least given the notable potential gains for private investment by augmenting the private sector’s footprint in the financial system and promoting the efficient allocation of financial resources across sector” is a pragmatic proposal to frontload for implementation. The staff appraisal on India approvingly cites the Fraser Institute’s Economic Freedom Indicators (EFIs) to highlight “India shows moderate structural gaps in judiciary and business regulations and significant gaps in credit market reform, compared to the emerging market benchmark”. It is time the authorities swung into action for rendering the most significant segments of the economy to function friction-free and productively.
Though the Fund’s appraisal on India encompasses a welter of wise counsels across the real sectors of the domestic economy, the doable part to plucking the low-hanging fruits must be the priority area to act for advancing towards the goal of Viksit Bharat.
(G Srinivasan is a senior economic journalist based in New Delhi)
