Delhi: Meghnad Desai Academy of Economics (MDAE), India’s top institute for post-graduate Economics, recently had the privilege of hosting a session with IMF Senior Resident Representative for India, Nepal & Bhutan, Andreas Bauer. Titled ‘The Global Economic Outlook and Implications for India’s Economy’, the lecture from the IMF Representative gave an insight into the current scenario of the global economy, the various factors that are influencing the Indian economy and how India is positioned amongst emerging markets around the world.
During the lecture, Bauer spoke about the global outlook where growth appears to have reached a plateau and risks are tilted to the downside. Issues discussed included the impact of increasing oil prices, UK’s economy slowing down due to Brexit, USA’s big tax cuts and budget expansion, and the structural factors that are holding down the potential growth rate of European economies, in particular ageing populations. Bauer presented a generally positive outlook for the Indian economy and the Asian region, although with some risks. “Emerging market economies around the world are growing much faster than advanced economies. India—the fastest-growing major economy in the world—and China together are expected to contribute about 50% to global growth in 2018. Asia altogether will account for about 2/3rd of global growth,” Bauer said.
With regards to the ongoing global trade tensions, Bauer presented analysis from the recent IMF Regional Economic Outlook for Asia and the Pacific, which suggests that an escalation of protectionist measures would affect growth in China and the USA more than other countries. He noted that India would be less affected by a trade war comparatively. “India’s economy is less exposed to an escalation of protectionist measures than other countries. Indeed, higher tariffs between China and the USA could lead to some increase in India’s exports and have a mildly positive impact on growth. But if the trade war escalates and affects investment and asset prices, then it would be also harmful for India.”
With regards to India’s domestic growth drivers, Bauer mentioned that demonetization and GST had caused a negative shock but these effects have now largely dissipated and economic activity is accelerating. “A key challenge for the Indian economy in the period ahead is to manage the more challenging external environment. India, being an oil importer is exposed to fluctuating oil prices, which affect growth, inflation, and the current account deficit,” said Bauer. He noted that the rupee is also weakening due to a global phenomenon as portfolio investors are reducing their positions in the Indian economy and redirecting capital back towards the US as rates rise there. He welcomed the use of exchange rate flexibility to help the economy adjust to the changing global scenario and stressed the importance of further structural reforms to enhance competitiveness and reduce the import-export gap, which would also ease pressure on the rupee to depreciate further.
Commenting on the session, Karan Shah, COO, MDAE, said, “At MDAE, our focus is on providing our students unique and effective learning opportunities that extend beyond the classroom and into the real world. We were privileged to host a noted and renowned economist like Andreas Bauer at our institute. His insights and knowledge about the many aspects and factors that weight on the Indian and global economy have enlightened our students and also helped all of us understand the steps and measures that can be taken in the coming months towards helping the growth of the economy.”