Gita Gopinath
IMF Chief Economist Gita Gopinath | Anindito Mukherjee/ Bloomberg
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New Delhi: India could really step up spending and do more to fight the Covid-19 pandemic, said Gita Gopinath, chief economist, International Monetary Fund (IMF).

Speaking to ThePrint’s Editor-in-Chief Shekhar Gupta during the digital Off The Cuff on 30 April, Gopinath pointed out that relief packages and measures announced by the Indian government should match the scale of the pandemic.

Read their full interaction here:

Shekhar Gupta (SG): Well, tell us first of all, are we standing in the middle of a burning deck and is this burning deck the entire world?

Gita Gopinath (GG): Well, Shekhar, your words are better than mine but the way I would describe it is that this is the crisis like no other. Which means we haven’t seen anything like this in our lifetime. What we are seeing is truly a global crisis. So this is not just about advanced economies or emerging markets but everybody is getting hit and getting hit hard. Our focus for this year is the great depression.

SG: I shouldn’t be hearing it, but go ahead

GG: You know, it’s negative 3 percent. So what we are seeing around the world is lockdowns everywhere and this is why we call this crisis the great lockdown. And it’s much worse than the global financial crisis in terms of magnitude, so these are unprecedented times. It is really bad but the problem is that there is so much uncertainty and it could get worse. So we might not have reached the bottom.

SG: So , the one smart aleckism is that this is one of those situations where instead of saying that this will get worse before it gets better, we might end up saying this will get worse before it gets worse.

GG: This is certainly one of those crises where the outcomes could be even direr before they get better. So let me just tell you why. One, of course, is that the origin of this crisis is a coronavirus pandemic. And the end of this crisis will be when we either have a vaccine so we can tackle this crisis or we have very effective treatments so we can treat this as any other virus that comes around on a seasonal basis. Until that happens, we are not under the woods and there are mentions that this could return in fall in many parts of the world. We could have waves of this infection. This could continue for a while. Given what we have in our baseline, our assumption is that it is supposed to get better in the second half. We expect to see a partial recovery in 2021. There is some hope. But again, there is so much uncertainty going forward.

SG: So , not everybody is an economist although everybody thinks he/she is — 1. An economist, 2. a cricket expert. 3 these days a virologist- but we know that all of us are not any of that, cricket experts we are. So what does the IMF do, where does the IMF come into this, and then I will ask you the second question- where does the IMF gets its money from?

GG: So the International Monetary funds plays three major roles. The first is what everybody hears about which is the financing aspect. We have a trillion dollars in lending capacity, and we can provide concessional financing to countries, and there are very different forms of it. Some of it is rapid financing which we would be using a lot this time. Then there is a second bucket which we call surveillance, which is that we survey countries. We pay very close attention to the developments in our 189 member countries in terms of what’s happening to the economic activity but also the policies. And that’s how we come up with these growth projections. And the third is capacity development and that is about policy advice. About what kinds of policies work in these kinds of crises or at any times. Given how unusual this crisis is, you have to think outside the box. And the question about who funds the IMF, it is these 189 countries who are the shareholders of the IMF whose money is what finances the IMF and there is also some external borrowing that happens.

SG: One trillion lending capacity is about little more than one third of India’s GDP at this point. It is a lot of money. But now you have more than a 100 countries asking for money.

GG: That’s right. So we have over a 100 countries that have come to us. Now these are mostly the lower income nations and some middle income nations. We are projecting that there needs will be for now around 100 billion dollars so that’s well within our capacity. But if things get much worse, then we will be talking about additional resources that we would need. The second thing I should mention about one of the things that the IMF does is that we have given loans to countries in the past. We obviously have to service our debts because they have to pay us back. What we are doing right now is that we are providing debt service relief to our poorest member countries which means we are saying that you don’t have to pay us now for the next six months. Instead use that money for critical healthcare spending and supporting your workers and firms. So that’s another kind of relief that we give which is debt service relief.

SG: So when you give that relief, I presume you also insist that money is used for the purposes for which it is meant.

GG: That is right. We have an agreement and a letter of intent when we give any kind of financing, the government signs up to make sure that this money is used appropriately. But just to mention sometimes when people think of the IMF program, they think of the heavy conditioning that comes with it. So a typical IMF program would be one which would be about three years long and will have a lot of appropriate conditions given the situation the country is in. But right now what we are talking about in terms of these 100 countries coming to us, we are providing rapid finances. It is much faster, it gets cleared much faster from us and the conditions are quite minimum but we have to make sure the money gets spent accurately.

SG: You must have figured that the question I asked you was a loaded one because you just gave a bunch of money to our favourite neighbour Pakistan. So that was in the nature of this emergency funding for healthcare and things that they need right now?

GG: Yes, in the case of Pakistan we also have a regular program for them but this was additional money given the nature of this crisis.

SG: And you monitor how this is used.

GG: We absolutely pay attention to how this money is used.

SG: I presume that India has not come to you asking for any money right now.

GG: No, as of now India hasn’t come to us.

SG: Are you surprised, are you disappointed- is this something you were expecting, are you happy that at least one country hasn’t come.

GG: Well no country is in the situation because they brought the coronavirus pandemic on themselves. In that sense, we are glad that we can provide the support that is needed. Now whether a country comes to the IMF or not is entirely upto the country’s own judgment. If you have the resources to manage the problem with your economy, so be it.

SG: So I have a question from somebody much wiser than me- A K Bhattacharya- who is an editor at Business Standard, one of the most eminent financial journalist in the country- he says- one of India’s foremost economist and former chief economic advisor Shankaracharya considered the IMF forecast of 1.9 per cent growth of India during 2020-21 ‘ludicrous and irresponsible’. How would you respond to this?

GG: Well, he is completely to his opinion, This is an environment where forecasting is particularly precarious and we have to base things on certain assumptions. Given the assumptions, we have made about the duration of the lockdown in India at the time this forecast was made and the intensity of the lockdown, that was our projection. And also just to be very clear, our forecast for 2020 — the calendar year– which is the one you use to compare to the other numbers– is 0.5 percent. So regardless of which number you take and how you feel about a particular number, these are very difficult times. I mean for a country that grows at 6, 6.5 percent and has potential growth at that level, when you are talking about growth less than 2 percent, this is a big hit to growth.

SG: This is bad enough

GG: Exactly, this is bad enough to call for sizable government support. We will pay attention to the numbers as they come in, and we will update them if it is the case that ground realities varying with the assumptions that we have made.


Also read: Modi govt is being sensible by not announcing a large fiscal package to help revive economy


SG: So we had Krishnaoorti Subramaniam earlier who endorsed your forecast and said that’s the reasonable forecast.

GG: If anybody can claim at this time that they know the true numbers and can be quite certain about it, I think I would be cautious to go that way. I think much of that humility is needed to recognise that these are very difficult times to make projections and the ground realities are changing but again, I want to emphasise that I read that piece , the second piece of the article, somehow our numbers tell you not to do enough, I find that very hard to stomach.

SG: That is Shankaracharya’s article

GG: Yes

SG: Next question from Nilabh- in the post Covid world, do we see countries taking even tougher stands on migration and travel. I would spin it further to say that do you see a reversal of globalisation?

GG: The risks to that are high. We came into this crisis already with a loss of an appetite for globalisation and growing projectionism in many parts of the world. And what this crisis has necessitated further deglobalisation because one people cannot travel, countries are putting restrictions on who can come into their country and leave. Secondly global supply chains are breaking down. When poeple cannot go to the factories and build things then of course they can’t export those and that creates problems everywhere in the world. So that is the response we have seen now. The risk, of course, is that once the pandemic is under control, you still have the strands of deglobalisation. And the countries will be putting in future barriers on migration or tourism or on goods trade and putting in more tax. So there are many other policies that can come about and that is a real concern, this is where the global community has to play a major role and raise voice against this.

SG: Second question from Nilabh- since IMF works in the area of policy, can we now expect governments in various countries to adopt more of the socialist welfare models given that the supply champion of the most commodity has now taken a hit, if that happens, standing on the burning deck, how does IMF respond to that?

GG: So the question of welfare is quite separate from the question of where you want to locate production. So I think what this crisis has made very clear is that countries need very strong social safety nets. And a way to be able to reach the vast majority of their population very quickly. In the absence of that you are scrambling to get money in the hands of the people. My sense is that this would trigger arithmetic transfer mechanisms. The second question is do we end up in a world where everybody is now producing more locally as opposed to globally. I think there is certainly one aspect which is that firms themself recognise risks in having production spread out all over the world. So they will hedge those risks by bringing some production to home or closer to home. So that will come more organically. Does this mean that countries should now go to shift and build at home and bring everything home, that is clearly not appropriate. I mean the world has benefited tremendously from the diversification of the production around the world. It has reduced poverty in many parts of the world, the productivity is much higher, And again, we are going through a deep recession. To climb out of it we need every help we can get including high productivity. So if we are going to break down these global supply chains and start doing things in a more unproductive way, that will just take a big hit to the recovery. And this is what we tell our member countries.

SG: Well this is true because it also works the other way. Today if we decide to put all supply chains of everything in your country and god forbid if your country gets hit by something terrible, then you have no other place to source it from. So I think there will be a balance. But everybody is looking more internally right now but I have a question from Rama Bijapurkar –where do you stand in the fiscal stimulus quantum – either keep your powder dry and be prudent or don’t worry about fiscal deficit. Having said that, i’ll add something that Pranab Bardhan said, India should be spending about 6 percent of GDP on relief- which is about 18 lakh crore rupees. What kind of money does India need to spend and how does India handle it?

GG: So this is a crisis where we are advising all our members to do what is needed. And the scale of the crisis is so big that the policy response has to be commensurate with that. Now India has taken a lot of important steps. I think the early lockdown was a very good step. They also have targeted support measures in terms of cash and food transfer and in terms of support to firms. And the RBI has taken many major steps. Our view is that the scale of this could be much larger, if you look at the incremental measures that have been taken, that’s about around 1 percent of GDP or slightly less. The question obviously comes up that should emerging markets be spending a whole lot more given the constraints they face unlike advanced economies who can spend much more easily given their reserved currency state? It is usual to make that comparison if you look at the average emerging market and see how much they are spending in this crisis, it’s about 2.5 percent of the GDP. So we do think that more can be done, In India, the scale of spending could be much higher than what it is now.

SG: Where should that money go?

GG: This is the crisis that calls for very targeted measures. So you certainly don’t want to do a helicopter drop all across the economy. I see there are a couple of very important areas. One is the health sector. That requires a large amount of resources and it is not just about now but even for the future. For now, of course it’s about protective equipments, testing medical facilities, doctors- nurse pay and so on. A second bucket is helping households and workers who lost their jobs. So we would think , in case of Indian context we talk about cash transfers being the most effective way given the large informality in the economy, because you want to make sure people are able to have their basic livelihood and needs. And then the third bucket is firms, where you want to make sure that this crisis is not where you end up with tremendous insolvencies, firms going bankrupt and there is no recovery from this crisis. So Measures have to been taken to support firms and you can do that in multiple different ways. Now one way is to loan forbearance which is what RBI has done. Second way is called wage subsidies which is that if you want firms not to fire their workers then they should be supported in terms of providing the wage income. So there are these multiple different measures that are needed to be taken. Again this is a very unique kind of crisis, you have to support certain sectors of the economy much more than others, the ones which are being affected by social distancing. And then of course you have to make sure that financial systems are able to play some role of providing credit in the economy that again requires support from the RBI.

SG: Then you see compulsions of political economy are coming. In our country for example, it becomes very tough for the government. Every government is hesitant to be seen to be helping the private sector. Now many ideas are coming in and one idea is that for private companies, at least up to a certain size, the government should offer to pay the employer share of the employee provident fund for a finite number of months. That’s a way of saying look we are softening the blow for you. But in India, political system finds it difficult to seen helping the private system. Is it something that you would advise the government because even if you are helping the private sector, you are helping the working classes, the employees?

GG: Many countries are doing this in a very substantial way. I think what is important here is the conditionality which is that you have to make clear if you’re supporting firms, you are doing it not so that they can pay more dividends to their shareholders or they can claim bigger salaries for their managers. It is to preserve the relationship between workers and firms so that they can keep workers on the job. And those conditionality are part of any of the rescue packages. So this is not just about whether we want to make the rich richer or we want to support firms so that they can support their wealthy shareholders or wealthy owners, but this is about ensuring that the workers in these firms get support. I would be averse to any blanket sharing of giving of money which does not have these conditionalities. You have to make sure that people are employed and that they get the employment.

SG: Sunil Lala, who is well known FMCG czar in India ,who says will it affect India’s standing for foreign investment if the government did spend more in this unusual year, which means raising fiscal deficit upto 6-7 per cent?

GG: Everybody is in the same boat.

SG: Same boat, with a burning deck..

GG: It is not as if you’re a country that is doing something out of the ordinary and you get excessive negative votes. So whatever India gets in terms of intention will be the same as whatever everyone in the country is getting. So that’s the sense in which I would say now is a different time and countries need to do whatever it takes. I would flag that there are other forms of financing that are available. There are international institutions that are providing concessional financing to countries, so if markets break down and they are not willing to fund you, we should be able to use these other resources. And that is important. I think it is very important for international organisations like us to be there providing concessional financing in this crisis. And again in the case of India, you can make a decision on how big you want the deficit to be, we certainly think more can be done.


Also read: Raghuram Rajan bats for quick reopening of economy, says India can’t support poor for long


SG: So the important thing is how you spend that money?

GG: As always. That Shekhar is always true. It is very important how you spend the money. In this particular crisis it is very clear… let me put it this way. In previous times you have this concern about what we call moral hazard, which is that somehow you are encouraging bad behaviour by giving people this kind of support. That is a much lesser concern at this point in this crisis.

SG: Well you know economic literacy also doesn’t come easily and I will tell you a true life story not a joke. Helicopter money, in a television channel in Kannada. A well known Kannada TV channel, actually read or heard about helicopter money and ran a story just 2 weeks back and ran a story saying that now the government has a scheme whereby helicopters will come and spray money over villages. After that GoI issued a show cause notice though I&B Ministry for fake news. So once again, helicopter money does not mean…. in any case the government should not go around spraying money. They should invest it the right way or give it to the really needy.

GG: That’s right. I don’t think many people actually understand what helicopter money is.

SG: That’s the reason I cautioned everybody because one TV channel thought one Mig17 will come and….

GG: Even the very sophisticated I don’t think understand, even if they don’t expect a helicopter over them.

SG: I also have a journalist from senior journalist Kalyani Shankar, you said India has not yet come to ask for money although a 100 countries have come. The situation is still the same, you said it’s still the same.

GG: That’s right.

SG: But if India came to ask for money will IMF be favourably inclined?

GG: We treat all our member countries exactly the same way. These are difficult times and we are trying to help all the countries as much as we can, so absolutely.

SG: And India has been a pretty compliant borrower in the past?

GG: There is nothing wrong with India’s…. yes

SG: India has not asked for refinancing, not ever greedy in that sense. Coming back to Rama Bijapurkar because she has another good question. Is the post-Covid an advantage China world since it is the first man standing or first woman standing?

GG: There is a lot going on right now, so China certainly is the one that has been able to control the contagion pretty dramatically if you look at the number of cases, it fell down really sharply. And activity has resumed over there. But China does depend on the global economy, it depends on demand from the global economy. With global demand being weak at this time and expected to be weaker this quarter, they are getting hit by weak external demand. So I dont think that argument works that well. What certainly is true is that China has taken a lot of big measures, not just on containment but on fiscal monetary policy. And that should help their economy recover faster.

SG: I have a question from my colleague, our managing editor YP Rajesh, who is from Mysore. He is asking what will you tell your dad in Mysore to expect from the economy in the next five years. And second, what does the economy have in store for your son in the US?

GG: Oh wow….I should just mention that when we put out the world economic outlook which is where we have our focus, we typically give projections for 5 years, and this time around we gave projections only for this year and next because there was so much uncertainty about what the world would look like even this year and next year. And then to predict where the world would be 5 years from now is very difficult. I would say that at this point, the next few months will tell us more about what the medium and longer image might look like. We did this calculation, so we said -3% growth for the global economy and 5.8% next from the global economy if the pandemic recedes in the second half this year. But suppose that is not the case and in fact it continues in the second half of this year and rolls into 2021 then that scenario has growth for the global economy in -6% this year and 0% for next year. As you can see, the two scenarios are very different and depending on which plays out it’s going to have very different implications for 2022 and 2023, so I don’t want to speculate at this time. What I would encourage around the world and here my father doesn’t play a role is that this is a crisis that requires speedy response and at a scale that is commiserate with this crisis. And that’s what they should be doing now to ensure that a recovery is possible in the future, otherwise we might end up in a situation where the global economy never ever recovers to where it was before the crisis.

SG: A follow up from Rajesh, he says of all the Black Swan events in the last 100 years, where do you rank this? Let me ask 100-200 years because then we get the Spanish flu as well.

GG: This is very serious. So again if we look at the last 100 years and major economic events triggered by different things. There was the Great Depression and then there would be the great lockdown. So now I think this would be for the history books when we teach economics we will be pointing to the Great Depression, which we have been teaching for decades and it will be the great lockdown. And ofcourse there is the global financial crisis which happened a decade ago, but that fails in comparison to what we are going through now.

SG: Jai Talwar is asking, should global economies open up from there lockdown sooner and bring in herd immunity? But Sweden has done that at some risk. Because economies also weigh costs of any policy. So you think a total lockdown has a cost-benefit ratio in favour of it?

GG: The way I think about it is the following. Which is that you want to get to a point and some countries are there where the contagion has spread enough that your health capacity is prepared enough. That you open up and if people fall sick they can go to a hospital and get treated. But the situation that you want to avoid is where there are hugely overcrowded hospitals and you can’t treat the sick that come in. This is not just about death rates and preventing that which is ofcourse very important but also we’ve seen that if that is the environment in the world then people are going to hold back spending inevitably. You are not going to go out and consume the way you did in the past. If what you are reading in the news and what you are seeing are people not getting the treatment that they need then becoming incredibly sick with morbidity problems and fatality problems. So that’s where you need to get, but that doesn’t mean you have to be in a lockdown forever but you have to get to that sweet spot. And then of course there is the opening up phase which has to be done quite carefully taking into account which sectors can be opened up. Depending upon transmission rates, on areas, hospots. And ofcourse an important ingredient is to continue testing for the nect many many months.

SG: I have a question from Remya Nair who is our business editor. Its an economics question, she says that many countries including India have moved to place curbs on Chinese investments as they aim to protect domestic firms from Chinese takeover. Also there is a feeling that now you can get manufacturing to shift out of China to other countries like India. One, do you think these are good steps or are these avoidable steps. And second, if India were to hope to get some of this investment to shift, has India carried out sufficient structural changes and reforms?

GG: So on the second question about China and moving production out of China, that was a trend that was also there before the crisis hit because as China has become a very large economy, over $14 trillion economy. The cost of production has gone up, they have become much more service oriented and so firms were already looking for other places to do their production. So now that will be a natural process that will accelerate. And at that time too I had mentioned that India should be leveraging on this to become a bigger part of global supply chains and take away some of this demand that is moving out of China. The question is whether this crisis will accelerate that and I think there is an argument to make that it will. Which is countries will look for more diversification so that they don’t have to rely only on one location. And that could be another trend we might see. Absolutely India should be playing a very important role here. They have done a number of steps in improving ease of doing business in recent years, there is a lot more that still needs to be done on issues of land and labour. Those are difficult issues but states are experimenting with different techniques and some of them work so I think you would need to do that. Because whatever said and done you need to have scale to be a part of the global supply chain. And one of the problems in India is that the firms are just very very small. And that makes it small.


Also read: Modi govt is being sensible by not announcing a large fiscal package to help revive economy


SG: Do you blame our political economy’s obsession with MSMEs for this? For the longest time we glorified small industry, we put definitions, we reserved sectors for them. That we have gotten out of but once again all the talk is about MSMEs. Can MSMEs prosper? Big ones are not prospering and growing?

GG: I would just say that the environment has to be right for anybody. Which is the ability to do your business with access and to sufficient infrastructure which is a constraint in India. In terms of electricity provisions, road, transportation, food, facility. All of that, again India has made a lot of progress on these fronts but a lot more needs to be done. MSMEs certainly provide job creation but what we have learnt from studying economies is that you don’t want to protect firms for too long. You want to encourage firms to innovate and you want to encourage firms to start up but once they have gone past 5-6 years then either they grow or they should shrink. And so you can give an earlier stage where you are trying to support firms coming in but you dont want to be providing unnecessary protection to keep less efficient producers in the market.

SG: So I have a question from Neelabh, which is on a different note. He says how will the investment landscape change in the post Covid world? How should a millennial manage their finances going ahead?

GG: What is interesting if you look at what financial markets are doing relative to what real economies are doing there is something of a disconnect there. You actually see more exuberance in the financial markets than you see what is happening on the ground. Now there are many reasons for it, one if of course they need tremendous amount of support from central banks around the world. So I guess what I am trying to say is that if you have your money in the US stock market then you would use some but not as much as you think the ground realities are. In terms of investing and going forward I think there will be sectoral shifts in which sectors are the growth sectors versus others. I could see a scenario where transportation sectors, tourism, retail all that is not going to be a growth sector. But you hear a lot about people deciding that work from home isnt so bad after all and maybe we should do that post the crisis. And I think there will be a shit to an intense digital economy, that would be another sector. And third is the recovery going forward. The hope is that it will be a green recovery so that we can deal with the problems of the planet and that would be another sector where there will be a lot of attention. I should just add its not good to ask economists what the stock market is going to do. Or for that matter anybody else.

SG: So now I have Ila Patnaik who you know well, she says at what level if India does bring out a fiscal stimulus will IMF start getting worried? Will 10% be an acceptable level? Will you start getting worried before or after that?

GG: I try not to get myself into trouble if I don’t have to. So I am not going to speculate about a hypothetical that is not there yet. And we will see what happens. I think what we are saying loud and clear is more is needed.

SG: Last couple of questions, my colleague Rama Lakshmi, our opinion editor, wrote an article last week where she said that Narendra Modi should take a lesson from Roosevelt and use this opportunity now to rebuild India. What do you think?

GG: I think many countries are trying to see this as an opportunity to make change. I guess it was Churchill who said you don’t want a good crisis to go to waste. And this is certainly a crisis that is of major magnitude and will have transformational effects on the economy. I would say there are 2 phases of this crisis. There is a phase now, where countries are in lockdown and are reopening and that requires the more targeted approach of getting incomes in the hands of people who need it. And ensuring your economy, at least the systems are in place. Then there is going to be the other phase where we might want to do a more general fiscal stimulus. And that would be more infrastructure spending, more blanket spending. That could be transformational. Third, India has been making very good progress to meet its goals. Relatively speaking to other countries it is taking substantial steps. So this could be an opportunity for India in terms of moving towards a better towards. I think it is very important that India continues to build social safety nets and use digital paying platforms, mobile payments, Aadhaar to provide the right amount of economic and health security.

SG: Gita, no one warned you that you will run headlong into this crisis. Are you happy that if this had to happen it happened while you’re there or would you rather that you had not expected this so why me?

GG: There is nothing to be happy about this current situation we are all in. I wish this had not happened. I would just say that moments like this also energise me, it is transformative as also as an economist, to be living through this period. And to think about issues where old models don’t work. We have never done how do you deal with a pandemic. And so that is an energising question and of course there is a sad aspect to it which are the lives which have been severely affected but I guess I am one of those people who likes to step into these moments and grapple with what I can.

SG: We call this the reporters luck, so it has to be a very lucky reporter who lands in the middle of a calamity. Maybe economists also have a name for this?

GG: Well I think economists are unpopular enough, we don’t want to come across as enjoying some moments too much.

SG: Thank you so much Gita.


Also read: Sitharaman should first let people know what state of economy is: Montek Singh Ahluwalia


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