India's going back to import substitution is wrong way to go: Anne Krueger

Anne Krueger, First deputy managing director of the International Monetary Fund spoke on India's growth prospects

Anne Krueger, senior research professor of international economics, Johns Hopkins University, and first deputy managing director of the International Monetary Fund (IMF) (2001-2006) spoke to Ruchika Chitravanshi in New Delhi on India’s growth prospects. Krueger also said multilateral institutions have been fairly effective if not completely. Edited excerpts: 

The IMF recently said that what is happening in the Israel-Hamas conflict has clouded its outlook for global growth. What is your view on the medium-term growth potential of the world and India?

Obviously, it is the same as the IMF. These are all new things and especially because they’re happening together, which itself is new. The outlook is much more uncertain than usual. There’s no doubt about that. What happens in the rest of the world also affects India and vice versa. 

India wants to become a developed country by 2047. Do you think this is an ambitious target? What is it that India needs to do? 

India has enormous potential and I’ve long thought that India could do a lot better than it is doing if it got its economic policies and stuff sorted out. If it did all the things that most successful countries have done to get their development, then yes, of course, it’s feasible. Whether India will want to do all that, I don’t know. 

What do you think of India’s production-linked incentive (PLI) scheme? 

In general, the Government of India has done too many of those kinds of things. It’s much better to get a very simple, straightforward, across-the-board level playing field (instead). 

India has declared that import licenses would be mandatory for electronic goods such as laptops and tablets. What do you think of these restrictions?

I think there should be no restrictions. I don’t see why the government always seems to think these restrictions will somehow work out perfectly without any other stuff. And, it almost never works. There are so many delays already. They would be much better off getting the ports or other things speeded up and get some more efficiency in the system.

What do you think of the slowdown in China and how does India stand to benefit from it? 

If China’s slowdown is serious and prolonged, the rest of the world is going to grow a little more slowly. More rapid growth in China is good for all of us. India is part of the ‘all of us’. There are no good reasons to be worried about Chinese growth and where it’s going. Before also, the Chinese have hit some crises and they’ve been able to resolve them and resume growth. It’s a little more questionable this time, partly because it’s more serious and partly because they’ve already achieved enough. So, getting to the next step is harder. 

In context of the China Plus One strategy and India trying to be a part of the global supply chain, how will it work?

Microsoft has been attempting to shift for probably 10 years. And, how much have they shifted? Not much. The Indian government wants to think it can control things that in fact it cannot control. The government’s civil servants are often very slow or the process is very long in getting permits and stuff done, in ways that it doesn’t happen in other countries. If I wanted to come here and start a business and I were an American chief executive officer (CEO), I’d look at the length of time it takes even to get land. And, now India’s going right back to import substitution, which is the wrong way to go. So, stop going the wrong way, and it would be a good place to start. 

A lot of our employment right now is in the informal sector. What should India do to bring it into the formal economy? 

Well, first of all, get rid of your import restrictions. Secondly, get rid of some of your labour restrictions. India has a large rural economy as most poor countries do. India has bottled up much of its labour force in agriculture and kept it there by not letting the cities grow. The cities can’t grow because of all those regulations we just talked about. So, the whole economy is sluggish. It’s not terrible. It’s doing okay, but it could do much better.

Our FM recently said that multilateral institutions have lost the effectiveness they had when they started. What do you think? 

First of all, I'm not sure if it’s true. I don't know how you measure effectiveness. I'd say they've been fairly effective. So, now that's not completely effective. And I'd say 80 per cent, it's just a rough number, of a country’s success or failure is a result of what it has done internally. The external environment can make it easier or harder to get there and add more. In the case of the IMF, the World Bank, and the World Trade Organization (WTO), I think they added more. So, without it, things would have been worse. Could we all have done better? Yes, no doubt. If India had done better, India could have grown, say, 9 per cent per year for at least a decade or so. And much of what the rest of the world could do to help, it can't until India does some things on its own. It's a complicated story.