Global Economic Dynamics and their Implications for India Subir Gokarn Executive Director, IMF IMC Chamber of Commerce & Industry Mumbai, February 9, 2017

Structure of Presentation Growth Outlook Four Key Drivers Trade Investment Technology Politics Implications for South Asia

Growth Outlook

Growth Variations GDP Growth Rates (%) 2016 2017 2018 1998-2007 World 3.1 3.4 3.6 4.2 USA 1.6 2.3 2.5 3.0 Euro Area 1.7 1.6 1.6 2.4 China 6.7 6.5 6.0 9.9 India 6.6 7.2 7.7 7.1

Messages IMF's World Economic Outlook did successive downgrades This trend appears to have bottomed out But, that's where it seems to be staying! "The New Mediocre" "Too Slow for Too Long for Too Few"

Opportunities But… Differentiated performance and recovery patterns Role of domestic and regional factors How to grow when others aren't?

Four Key Drivers

Trade: Remarkable Slowdown Global trade in G&S has grown by 3% since 2012 This is less than half the rate seen the previous 30 years Between 1985-2007, trade grew twice as fast as GDP Since then, they are at the same pace No longer an Engine of Growth?

Trade: Contributors to the Slowdown (WEO Oct 2016) Deceleration in global demand Increase in protection in various forms Peaking out of growth in global supply chains

Investment: Also in Slow Mode Growth rate in Investment slowed from 12% p a during 2003-08 to 3.4% in 2015 Steady deceleration over the past 5 years 70% of EMDEs show investment growth below long-term average, compared with 30% in 2006 Forecasts indicate persistence of sluggishness/decline

Investment: Contributors to the Slowdown Sluggish global demand Commodity price patterns Financial constraints: risk aversion Excess capacity "Unearthed" capacity

Investment: Excess Capacity in Chinese Industries

Investment: "Unearthed" Capacity Two extremely valuable companies have no conventional assets – UBER and AIRB&B They have "unearthed" capacity Houses and personal cars were not considered commercial assets, but UBER and AIRB&B have converted them Several other businesses are similarly unearthing capacity

Technology: Rise of the Robots Robotics moving into increasing number of manufacturing activities From metal-forming to shoes; even to rotis! AI displacing humans in variety of activities – call centres! Rapid obsolescence of skilling and training mechanisms Where are the jobs going to come from, if at all?

Politics: Reversing the Tide Global integration appears to be in retreat Perception of iniquitous distribution of benefits Are protectionist forces going to gain ground in national governments? Implications for domestic policies

Implications for India

Threats and Responses Trade decline and protectionist portents Plug into the Growth Neighbourhood Diversify to exploit regional opportunities Investment weakness Infrastructure and EODB But, need to understand the "new" investment dynamic Conventional drivers may be becoming less relevant

Threats and Responses Automation – from Demographic Dividend to Demographic Disaster? Complementarities between AI, robots and people Forward-looking assessment of and training requirements Affordable and sustainable safety nets Global political trends Collaborative multilateral counters to dis-integration Credible sharing of benefits