India has the potential to grow at 9 per cent for a decade and 8 per cent in subsequent years if the country takes bold reform measures, eminent economist and Harvard University professor Lawrence Summers said today.
“Except India, major emerging economies seem to be losing momentum… I think if India maximises its potential, it could grow at 9 per cent for a decade, and 8 per cent a decade after that, and 7.5 per cent for a decade after that,” Summers said during a session at the Hindustan Times Leadership Summit.
Summers, who is president Emeritus and Charles W Eliot professor at Harvard University said he is very optimistic about the capacity of India but the country needs bolder reforms.
“… 9 per cent growth, decline by 0.5 per cent to 1 per cent every decade, that is my sense about India’s potential that is not my forecast for India because India would have to reform more boldly and take a whole set of steps not just at the national level but at the level of states, and even at the level of culture if it wants to achieve that potential,” he said.
Quoting IMF, Summers said India is projected to be the fastest growing economy in the world over next 5 years.
Summers’ statement assumes significance as India’s economy grew at 7.4 per cent during July-September this fiscal year, more than China’s growth rate at 6.9 per cent.
Summers, who was also US Treasury Secretary, said India should not blindly follow the so called Tiger’s economies growth model and it should give more stress in developing its services sector.
“I think India can do lot to promote manufacturing. But I don’t think it is reasonable to think India should follow South Korea’s export-led growth model.
“India has different potential and it should concentrate more on services sector,” he said.
Summers also stressed on the need of speedier and predictable decision-making in India.
“Speedy decision-making has never been an Indian hallmark. There is still too much of sense in India, that being well-connected is particularly very important in the country. If this can be worked on, nothing like it,” Summers said.
Asked whether the US Fed should raise interest rates, he said, “It is very clear. Given the current context, there isn’t any other alternative to raising interest rates,” he said.
* Dollar at highest since March vs currency basket, euro down
* China’s yuan strengthened after IMF decision
* U.S. stocks down ahead of data; Asia dips, Europe up
* ECB stimulus expectations lift European stocks
* Oil rises ahead of ECB meeting, OPEC on Friday (Updates to afternoon, adds commentary)
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The dollar hit an eight-and-a-half-month high against major currencies Monday as the prospect of further European Central Bank stimulus dragged the euro down to its weakest since mid-April, while oil prices retreated.
Global stock markets were mixed, with Wall Street falling ahead of a crucial payroll report Friday, while European shares rose. Still, the three major U.S. indexes were set to end the month higher for a second straight month.
The jobs report is arguably the most important U.S. economic indicator due out before the Federal Reserve decides on Dec. 16 whether or not to raise interest rates for the first time in nearly a decade.
“The market has largely priced in a December hike and it would have to take a pretty significant miss with the jobs report to give the Fed some pause before its next meeting,” said Randy Frederick, managing director of trading and derivatives for Charles Schwab in Austin.
The Dow Jones industrial average fell 49.9 points, or 0.28 percent, to 17,748.59, the S&P 500 lost 6.37 points, or 0.3 percent, to 2,083.74 and the Nasdaq Composite dropped 16.24 points, or 0.32 percent, to 5,111.28.
The week is expected to highlight the divergent economic policies in the United States and the euro zone, which may set the tone for markets early next year.
European shares were lifted by the prospect of the ECB unveiling an extension of its bond-buying program at a Thursday meeting. The pan-European FTSEurofirst 300 index rose 0.4 percent for a 2.3-percent monthly gain.
The dollar index, which measures the greenback against a basket of major currencies, was up 0.16 percent despite disappointing data on U.S. business sentiment and pending home sales. It hit its highest point since mid-March and was set for its biggest monthly rise since January.
“The market’s really kind of looking through the numbers that are coming out right now and more looking towards the end of the week and central bank discussions,” said Douglas Borthwick, managing director at Chapdelaine Foreign Exchange in New York.
The euro fell 0.2 percent against the dollar to its lowest point since April.
The MSCI index of world stocks was off 0.4 percent and on track for a 0.9 percent decline for November.
Brent futures were lower and U.S. crude gave back earlier gains on Monday as a pre-OPEC-meeting rally and run-up in U.S. refined oil products faltered.
U.S. crude futures settled down 6 cents, at $41.65. Brent crude, the global benchmark ended down 25 cents, at $44.61 per barrel.
Gold, on track for its worst month since June 2013, traded up 0.7 percent at $1,065.86 an ounce.
U.S. Treasuries prices rose modestly Monday on hesitation ahead of speeches from top Federal Reserve speakers throughout the week. Benchmark 10-year Treasuries rose 2/32 in price to yield 2.221 percent, down from 2.222 on late Friday. The 30-year bond was up 6/32 in price to yield 2.99 percent.
The IMF will add the yuan to its basket of reserve currencies, an international stamp of approval of the strides China has made integrating into a global economic system dominated for decades by the U.S., Europe and Japan.
The International Monetary Fund’s executive board, which represents the fund’s 188 member nations, decided the yuan meets the standard of being “freely usable” and will join the dollar, euro, pound and yen in its Special Drawing Rights basket, the organization said Monday in a statement. Approval was expected after IMF Managing Director Christine Lagarde announced Nov. 13 that her staff recommended inclusion, a position she supported.
It’s the first change in the SDR’s currency composition since 1999, when the euro replaced the deutsche mark and french franc. It’s also a milestone in a decades-long ascent toward international credibility for the yuan, which was created after World War II and for years could be used only domestically in the Communist-controlled nation. The IMF reviews the composition of the basket every five years and rejected the yuan during the last review, in 2010, saying it didn’t meet the necessary criteria.
“The renminbi’s inclusion in the SDR is a clear indication of the reforms that have been implemented and will continue to be implemented and is a clear, stronger representation of the global economy,” Lagarde said Monday during a press briefing at the IMF’s headquarters in Washington. Renminbi is the currency’s official name and means “the people’s currency” in Mandarin; yuan is the unit.
The addition will take effect Oct. 1, 2016, with the yuan having a 10.92 percent weighting in the basket, the IMF said. Weightings will be 41.73 percent for the dollar, 30.93 percent for the euro, 8.33 percent for the yen and 8.09 percent for the British pound. The dollar currently accounts for 41.9 percent of the basket, while the euro accounts for 37.4 percent, the pound 11.3 percent and the yen 9.4 percent.
The yuan weakened in offshore trading Tuesday amid speculation China’s central bank will rein in intervention now that the IMF vote on reserve-currency status is out of the way. The long-term goal is for very few interventions, People’s Bank of China Deputy Governor Yi Gang said at a briefing, adding that bigger two-way fluctuations are normal.
In a preliminary report in July, IMF staff estimated the yuan would have a weight of about 14 percent to 16 percent. The weighting will affect the interest countries pay when they borrow from the IMF. It may also affect the scale of inflows the Chinese currency receives in the coming months.
Monetary System
The decision establishes the yuan as a fixture in the very international monetary system Chinese leaders criticized following the global financial crisis. In a landmark 2009 speech, PBOC Governor Zhou Xiaochuan argued a global system so reliant on a single currency — the U.S. dollar — was inherently prone to shocks. That conviction set off a global push by China’s leaders, including now-President Xi Jinping, to have the yuan included in the SDR, which countries can use to supplement their currency reserves.
The IMF staff recommendation was based on increasing international use and trading of the yuan, policy reforms that allow yuan to be used smoothly in SDR operations, and steps by China to step up data disclosure, the fund said. A more detailed staff report will be released later Monday or Tuesday, IMF officials said.
“It’s a big win for Beijing as they look to bolster their image and to get the respect they think they deserve,” said Timothy Adams, president of the Institute of International Finance and a former U.S. Treasury undersecretary.
The IMF endorsement is a bright spot in what has been a tumultuous year for the world’s second-biggest economy, which has been buffeted by slowing growth, a tumbling stock market and a shift by authorities toward a more market-oriented exchange rate.
The IMF’s decision is a “win-win” for both China and the world and acknowledges China’s achievements in economic development and reform, the PBOC said in a statement on its website. The U.S. supported the fund’s staff recommendation to add the yuan, the Treasury Department said in an e-mailed statement without elaborating.
Approval is unlikely to have much impact on short-term demand for the yuan, given the SDR’s minor share of global reserves, according to economists at banks including HSBC Holdings Plc and ING Groep NV.
Adams said that rising demand may be “evolutionary” and “a process that will likely be pronounced.”
The decision should boost efforts by Xi to open up China’s financial markets. China implemented a series of reforms to win IMF support, such as opening its onshore bond and currency markets to foreign central banks and reporting its reserves to the IMF.
G-20 Host
The question is whether China, which will host meetings of the Group of 20 economies next year, will try to leverage the IMF’s support to pursue broader changes to the global monetary system. In his 2009 speech, Zhou suggested the IMF expand the use of the SDR to tap its potential as a “super-sovereign reserve currency.”
The IMF’s move may also spur political blowback in the U.S., where Republican lawmakers have blocked efforts to expand the voting shares of China and other emerging-market economies at the fund. Senator Bob Casey, a Pennsylvania Democrat, said in an e-mailed statement that the decision “validates China’s history of cheating on its currency,” a history that’s hurt jobs and wages in his state.
The Washington-based fund created the SDR in 1969 to boost global liquidity. Under the Bretton Woods system of fixed exchange rates, countries pegged their currencies to the U.S. dollar. But for nations to increase their dollar reserves, the U.S. would have to run persistent current-account deficits, threatening the value of the greenback.
The SDR addressed this dilemma by serving as a supplementary reserve asset to augment countries’ gold and dollar holdings. While the SDR isn’t technically a currency, it gives IMF member countries who hold it the right to obtain any of the currencies in the basket to meet balance-of-payments needs.
Confident that the Indian economy is increasingly on a stable footing, the International Monetary Fund (IMF) on Sunday said further progress is required on the long-standing supply bottlenecks and for achieving faster and more inclusive growth.
“We are optimistic about India’s prospects and view the economy being on an increasingly stable footing,” said Kalpana Kochhar, deputy director of the IMF’s Asia and Pacific department.
“Inflation has declined, the current account deficit is in check, international reserves are ample and economic growth is picking up,” she added.
Listing out various positive developments, Ms Kochhar said a number of important economic and structural reforms have also been initiated.
These include diesel price deregulation, steps to create more flexible labour markets (particularly at the state level), coal sector reforms, adoption of the flexible inflation targeting framework by the Reserve Bank of India (RBI), increasing infrastructure spending, and enhancing financial inclusion, Ms Kochhar told PTI in an interview.
“But further progress is needed to relax long-standing supply bottlenecks (especially in the energy, mining and power sectors) and achieve faster and more inclusive growth,” she said.
The IMF has often said that India is among the few bright spots in an otherwise gloomier world economy.
In a recent report published ahead of the G20 Summit, which began in Turkey on Sunday, the Washington-based multilateral institution said India’s growth will benefit from recent policy reforms, a consequent pickup in investment and lower commodity prices.
It also projected a 7.5 per cent growth rate for India in 2016, as against China’s 6.3 per cent.
However, for the current 2015 year, the IMF has projected 7.3 per cent growth rate, which is 0.2 per cent less than its projection made for the year in July.
“Growth in China is expected to decline as excesses in real estate, credit, and investment continue to unwind. India’s growth will benefit from recent policy reforms, a consequent pickup in investment, and lower commodity prices,” the report said.
India has the potential to grow at 9 per cent for a decade and 8 per cent in subsequent years if the country takes bold reform measures, eminent economist and Harvard University professor Lawrence Summers said today.
