 "Jose Viñals, financial counsellor & director, IMF")
The International Monetary Fund (IMF) might revise its estimate for global economic growth in its Spring meeting but India is better placed than other emerging market countries, said its financial counsellor and director, José Viñals, on Thursday.
In January, the Fund had lowered its global growth forecast by 0.2 percentage points, to 3.4 per cent in 2016 and 3.6 per cent in 2017.
Globally, banks and corporate books have been saddled by $3.5 trillion in over-borrowing and this is dragging down global growth, Viñals said in a talk at the Reserve Bank of India (RBI) headquarters.
India has benefited from a dramatic fall in commodity prices, particularly oil, an inflation-chasing central bank and the government adhering to fiscal discipline. As a result, global capital is coming to India but that should not be taken for granted. “A country like India faces its own idiosyncratic challenges due to existing weaknesses in corporate and banking balance sheets,” said Viñals, adding, “Vulnerabilities in corporate financial positions and public banks’ asset quality pose risks to economic recovery and to financial stability if left unaddressed.”
India should also guard against domestic market volatility and continue to attract capital by strengthening its macroeconomic fundamentals. Government should take action to fix supply-side problems; reform in the power and mining sectors are important, he said. “To sustain the robust growth and to keep inflation under control and in continuing to keep a lever on fiscal consolidation, it is very important that priority is given to clean-up public sector bank balance sheets and to corporate debt overhang,” he said.
Banks in Europe also have high levels of bad debt — at 5.5 per cent of their lending, this translates to $700 billion. Cleaning of bad debt is important as banks are unable to lend further due to their bad assets and this erodes their capital as well.
Globally, policymakers should come up with more comprehensive and concerted efforts to fight the slowdown. India and China are two important countries for global growth but the growth issues in China and its bad debt problems are a cause for concern. However, Viñals said, a hard landing is not expected in the case of China.
RBI governor Raghuram Rajan, who was hosting Vinals at RBI, mused that the world continues to be curious about China.
"In 10 years, the question still has not changed (on China) - soft landing or hard landing. The answer has not changed either - 'soft landing'. I hope you are right for the sake of the world," Rajan said in response to Vinals' take on the world's second largest economy.
