Need to create between 60 million and 148 million more jobs in 6 years till 2030: IMF’s Gita Gopinath

Q1: What are the main worries or challenges that you see before the global economy?

GG: So firstly, if you look at global growth, we see it as quite stable — at 3.2% this year and 3.3% for next year. In terms of the challenges to it, the concerns are, firstly, on the front of inflation. It’s been coming down for most countries in the world, and we expect that to continue, but the job is not completely done at this point. So we just need to make sure that that happens without there being any big effect on terms of economic activity.

The second is what’s coming from geopolitics and conflicts around the world that has implications for commodity prices. And there’s a risk that if there is further increase in tensions in the Middle East that could have that could raise oil prices, for example. So that’s another area that has implications for the world.

We’re also in a year of political uncertainty, because this is a year where we’re having a large number of elections around the world. That brings with it uncertainty on specific policies, and that could have some implications for global growth.

What we are somewhat more concerned about is the medium term, where our projections for growth of the medium term are some of the weakest we’ve had in decades. It’s around close to 3%. It used to be 3.8% on average over the last two decades, if you look at the average over the last two decades. So we’re looking at, you know, not great global growth into the medium term, and for that, we think it’s going to be important all over the world for governments to focus on growth, which will take some very serious structural reforms.

Q2: One of the things that we saw in the last two, three years was the massive spike in inflation across the world, and central banks across the world raised interest rates, but as we saw in many emerging economies, including India, there was a sense that raising interest rates was not tackling this supply-shock inflation There have been many question marks on the inflation-targeting regime that India is following. Do you think that an inflation targeting regime is apt for developing economies such as India?

GG: I think inflation targeting regimes have really delivered for countries around the world. As you know, it’s called flexible inflation targeting, which is that you do take into account the fact that some of the drivers of inflation may be out of the control of monetary policy, and so you do take that into account when you’re setting your policy rates. But inflation targeting helps because it helps anchor inflation expectations. What we’ve seen is the countries that have moved towards inflation targeting regimes, they gain credibility because of the anchoring of that inflation expectation. And so these second round effects that come from shocks like food prices are more contained. And in that sense it’s very helpful.

I think it’s been very beneficial for India too. You know, since it adopted inflation targeting in 2015 using inflation expectations more anchored on average, inflation has been lower than before. So again, the idea is to use it, and to use it, of course, keeping in mind this is that there is flexibility associated with it. You don’t try to hit the target in every single moment, but this is on average that gives you the flexibility you take into account what the impact is going to be of food prices on second round effects that show up in core inflation. So you have to do it smartly, of course, but it’s still, I think, a very good framework.

Q3: India has been one of the brightest spots when it comes to GDP growth rates. Data shows that India is around that level of GDP where China was in 2002. China, of course, went to experience a massive rise in GDP since. Do you think that India could follow a similar trajectory over the next two decades? And are there certain bits of China’s rise which India should avoid?

GG: Firstly, as you said, India is doing extremely well in terms of its growth numbers. At 7% growth for this fiscal year makes India the fastest growing major economy in the world, and that contributes about 17% to global growth. So it is a very important contributor to the global growth that we’re seeing right now, and we expect in the medium term, as of now, (India’s GDP) growth to be around six and a half percent. So that it should hold up as being one of the big contributors to global growth.

It is hard to make direct comparisons with other countries because there’s a lot of the devil in the details. But what is absolutely clear is that if India continues on the path of serious reforms, and it will require large scale reforms and on multiple fronts, then you know, this growth can be maintained. It can be increased, and certainly per capita incomes will then, will then rise. But again, it’s important for growth to come along with a lot of job creation. We ran some numbers, and if you look at what is needed in terms of additional job creation in India between now and 2030 cumulatively is, you know, anywhere between 60 million and 148 million. That will not happen if you just focus on a couple of sectors or particular areas. It’s going to require broad based growth across the different sectors.

Q4: Employment is an issue creating massive unrest in many developing countries such as India. Bangladesh is just another example. Is there a policy prescription for developing economies, which have a large and growing youth population, to allow them to make economic growth work for all and create jobs?

GG: So firstly, if you have, in general, an environment where there is more corporate investment that’s taking place, that induces more corporate investment, that has flexibility in the labor markets, that allows for allocation of resources to move freely in terms of labor, land, capital across different sectors — those are what help with just broad based growth and job creation.

So in the case of India, there are things that can be done in the short term, but also others that would require a longer period of time.

So in the near term, first year, I think it’s important that business climate matters. The ease of doing business matters in terms of dealing with regulations, red tape and so on. All of that really is critical to be able to get business dynamism in the economy going. And there are some states like, you know, Gujarat and Tamil Nadu, where you’re seeing more foreign direct investment go, which are also states where the business climate is ranked as high.

The other is areas, in terms of labor market reforms, the government has done a lot. There were these new laws that were approved by parliament in 2019-2020, it’s important now to implement those fully. That’s going to require working with the state governments, incentivizing them to do the full implementation. That’s going to be very helpful. Trade has been very helpful for other countries in the world, who’ve grown and, you know, also done a lot of job creation. India has, on average, higher tariff rates than its peers do. So I think again, working on removing trade restrictions will enable it to play a bigger role in global supply chains. And this is a moment to seize, because a lot of countries are looking to India as a country to work with, given the current geopolitical environment we’re in. Public investment spending, which has been very good in India, obviously, needs to continue, and the budget is putting an appropriate focus on that.

But there’s also these other more slow moving factors that are absolutely critical. Human capital — making sure that the skills of the population are keeping up with the demands of industry is super important. And so, you know, focusing on education and skilling is absolutely critical. Raising productivity of agriculture is very important. To get the workers to move out of agriculture into other other areas. Land reforms, again, play a very important role. So you need these broad based reforms happening at multiple levels to be able to keep up the growth rate and continue on the trajectory towards higher income status.

Q5: How do you view the rise of artificial intelligence and, in the Indian context (surplus labour), will it be a saviour or is it going to be a curse leading to massive job losses?

GG: So in terms of exposure — our estimate is that around 25% of workers in India would be exposed to AI. Now that doesn’t mean they’re all going to be negatively affected by it because depending on the sector you are in, you can be positively impacted or negatively impacted. The fact that a large number of workers are still in the agricultural sector, the substitution coming from the new form of AI, generative AI, is somewhat less.

Again, in terms of a country like India, there are multiple channels through which it can affect India — some of it very beneficially, some of it less so.

On the beneficial front, it can help, for example, in terms of dealing with skill shortages. It just helps to fill that space. But also in terms of raising human capital and education; there are more creative ways of making that education happen. AI can help with that.

It can help in the public finance space in terms of being able to raise revenue, implement your tax scheme much better, raise revenues much better. So all of that is super positive. And since India has also, you know, this services IT area, they can complement it quite well.

But on the other side, there are some areas, like, for example, call centres, where you might see AI basically leading to not as much demand for these kinds of workers. So it’s a mixed bag.

But again, this gets me back to the point that we certainly now are in times where we’ve had a lot of automation in manufacturing, and what generative AI does is bring about customer automation in the services sector. So which is why, if you really want to make sure they have growth and you have job creation for a lot of people, you just need broad based reforms.

Q6: There is a lot of chatter about dollar dominance. Many countries see a strong exchange rate as a matter of national pride, as the case of India. There is a desire to move away from dependence on the US dollar for trade. How do you see these demands? Are these necessarily beneficial for global trade and India?

GG: Firstly, the dominance of the dollar has come about organically, which is a choice of market participants around the world to rely on the dollar. And this is the case of the dollar now it’s a case of the British pound in the past, before the dollar took over that role. So the reason the dollar places the dominant role is because of the strength of the institutions of the US, the fact that you have fully open capital markets, and full convertibility of the exchange rate. It’s the trust in the institutions that have backed the dollar that have led to the adoption of the dollar as a dominant currency. And of course, if it’s taken up by a large number of people, you get these strong network effects, where, because I buy in dollars, I sell in dollars, and that generates a self-fulfilling dominance that comes about. So it is the fundamentals that matter.

So I think for any country in the world that is working on trying to improve those fundamentals in terms of macro stability, financial stability, deepening your financial markets, convertibility for your currency. All of that has plenty of benefits. Set aside the question of whether it becomes a dominant currency in the world or not, there’s plenty of positive benefits that come from it, and so just working on those would be valuable for all countries.