Interacting with students at The Shri Ram College of Commerce on India’s position in a changing global economy, Martin Raiser, World Bank's VP for South Asia, shared four key factors for India to become a high-income country by 2047:
➡️ Continue investment in Human Capital
➡️ Increase Female Labour Force participation
➡️ Improve business climate to attract more private investment, including FDI
➡️ Accelerate climate action initiatives to build resilience & advance India’s economic growth & development
00:07 It gives me immense pleasure to invite our chief guest for the day,
00:11 Doctor Martin Reiser,
00:13 Vice President for South Asia for World Bank,
00:15 to share his views with our participants.
00:25 Thank you very much.
00:26 Uh,
00:26 good afternoon to all of you.
00:28 Um,
00:29 I would like to say,
00:31 uh,
00:31 at the beginning
00:33 that it's a particular
00:34 honor and privilege to be hosted by
00:37 two ladies,
00:39 uh,
00:39 Doctor,
00:40 uh,
00:40 Malika and Professor Cole.
00:43 And
00:43 as Professor Cole was saying to me before we walked in.
00:47 In the 1950s,
00:49 there were virtually no ladies studying commerce and Economics
00:54 at the um
00:55 uh at the uh Shriram College.
00:58 And now as I look around the room,
01:01 I can't really distinguish,
01:02 but I would say it's almost half and half.
01:05 And this
01:06 is a great sign of the progress
01:08 that India has made over the last
01:10 uh seven decades.
01:12 Um,
01:12 it's also um a sign of hope for the future.
01:16 Uh,
01:16 but,
01:16 um,
01:17 uh,
01:18 more will need to happen
01:20 to make sure that all of you here,
01:22 ladies in the audience,
01:23 end up working,
01:24 uh,
01:25 because that's ultimately what's going to give the benefit,
01:28 uh,
01:29 to the,
01:29 to the economy.
01:31 Um,
01:31 it's a great,
01:32 uh,
01:32 it's a great pleasure to be able to speak to you.
01:35 Um,
01:36 I'm also used to
01:38 making presentations with PowerPoint.
01:41 But we have a new president,
01:43 uh,
01:44 just
01:45 confirmed by our board,
01:46 uh,
01:47 of Indian origin,
01:48 uh,
01:49 uh,
01:49 Mr.
01:49 Ajay Banga,
01:51 uh,
01:51 he studied at your rival Saint Stephen's College.
01:53 I hope you don't,
01:54 uh,
01:55 hold it against.
02:00 But he has a,
02:01 has,
02:02 has uh been telling his,
02:03 uh,
02:04 uh,
02:04 managers that he wants no PowerPoints,
02:07 so I thought I'd try it out without a PowerPoint with you.
02:12 So with those introductory remarks,
02:14 uh,
02:14 let me once again thank you for the invitation.
02:18 Um,
02:18 among your alumni are some very important people
02:22 for the World Bank's relationship with India,
02:24 such as the former Finance Minister Arun Jaitley.
02:27 Uh,
02:28 and of course some of my colleagues here,
02:30 uh,
02:30 in the World Bank team,
02:32 uh,
02:32 Doctor Mohan,
02:33 um,
02:34 uh,
02:34 have,
02:34 uh,
02:35 have also graduated from,
02:36 uh,
02:37 the Shira College of Commerce.
02:39 Now,
02:44 Professor Carl talked about
02:46 a polycrisis
02:47 universe.
02:49 I'd like to talk to you today about
02:51 the structural shifts happening in the global economy
02:54 and how India
02:56 is positioned to handle it.
02:59 The world has seen one global shock after another in the past 3 years,
03:03 and it is now said widely that we are living in a holy crisis universe.
03:09 The COVID-19 pandemic,
03:11 the conflict between Russia and Ukraine,
03:14 and the resulting food and energy crises,
03:16 surging inflation,
03:18 rising debt
03:19 and interest rates,
03:20 and of course
03:22 to top it all up,
03:23 the growing signs
03:25 of a coming climate emergency.
03:28 This confluence of crises hits emerging markets particularly hard,
03:32 as a large share of their population tend to be highly vulnerable to economic
03:37 and climate shocks.
03:39 And in this world of crisis,
03:42 as Professor Cole has said,
03:43 India has shown to be quite resilient.
03:46 Now it's not true that India did not experience a contraction during COVID.
03:51 GDP declined by 5.8%
03:54 in financial year
03:56 2021.
03:58 But it rebounded strongly
04:00 because India was good at vaccinating all of its population,
04:04 so that the year after growth was up to 9%,
04:07 uh,
04:08 last fiscal year,
04:09 uh,
04:09 it was 6.9%
04:11 and we forecast around 6.3% for the coming years.
04:15 So that makes India
04:17 a strongly growing economy
04:19 in a global context in which growth is not particularly strong.
04:22 So that's,
04:23 um,
04:24 uh,
04:24 that's a good position to be in.
04:28 Nonetheless,
04:29 India is not immune
04:31 to the impact of the poly crises.
04:34 Some of the legacies from the crises relate
04:37 to the learning losses experienced during COVID.
04:40 Again something that we discussed before coming in.
04:44 Which could significantly impact future productivity and
04:47 lifetime earning potential of children and youth.
04:51 The pandemic and its associated economic effects
04:54 are also estimated to actually have increased poverty.
04:58 I'm,
04:58 I'm,
04:58 I'm afraid,
04:59 um,
05:00 our simulations,
05:01 and we don't have good data on poverty because the surveys,
05:05 uh,
05:05 are still in process,
05:07 so we don't have
05:08 actual statistics,
05:09 but our simulations suggest that because of the sharp decline in GDP,
05:14 poverty probably went up during the COVID pandemic,
05:18 but it has since fallen again.
05:20 So,
05:21 uh,
05:22 that means,
05:22 however,
05:23 that some people have experienced what we call scarring effects that
05:27 may have a lasting impact on their future earnings potential.
05:32 So,
05:32 the social welfare programs,
05:34 the support measures that governments put in place are extremely important
05:38 to reduce the risk of those scouring effects.
05:43 On top of that,
05:44 and this is what I would like to focus the remainder of my talk about,
05:49 what we've seen in the world economy as a result of these multiple crises
05:54 is that the potential growth rate
05:58 Of the world economy going forward has declined,
06:01 and this is also the case in India.
06:03 Um,
06:04 our chief economist's office came up with a report recently
06:08 and it suggested
06:09 that the potential
06:11 economic growth rate of India
06:13 is around 6% at the moment.
06:16 That is a result of the amount of investment that the country makes,
06:20 uh,
06:21 the amount of growth that it experiences in its labor force.
06:24 So as a young country,
06:26 the labor force in India is still growing,
06:28 so that adds to growth potential
06:30 and the kind of productivity growth that we can expect from India going forward.
06:35 So if you add that up,
06:37 you get around 6% growth.
06:40 But to reach the objective of being
06:43 a developed country by the time of its 100th anniversary,
06:47 India needs to grow faster than this.
06:50 And so,
06:51 while India can I think be very proud of the position in which it is today.
06:58 In order to reach its aspirations,
07:00 it may have to do even better.
07:03 And so it's in that context that I want to talk about
07:06 the connection or how where India is placed in relation
07:10 to the world economy.
07:12 And I want to talk about 4 key structural shifts
07:16 that we see ongoing in the global economy,
07:19 and I want to make the argument
07:21 that at least 3 of these shifts represent opportunities for India
07:26 if it adopts policies to harness them to the full extent,
07:30 and one of these shifts.
07:33 Has a bit of opportunity but also has some significant risks.
07:37 So let me talk about these 4 shifts.
07:39 What are these 4 structural shifts?
07:42 The first is
07:44 population aging,
07:44 demographic change.
07:46 Populations are aging fast,
07:49 almost across the entire
07:51 world
07:52 and especially in high income and upper middle income countries.
07:57 And that means
07:58 that the global share of the working population,
08:02 which was increasing very rapidly over the past three decades,
08:06 has started
08:08 to,
08:08 uh,
08:08 no longer increase and may start to fall over the course of the coming decade.
08:15 And what that means is that in relation to
08:18 the total population,
08:20 the number of people working is less
08:23 or is not growing.
08:25 And
08:25 that means that the age of wage moderation,
08:29 which was
08:30 in many ways related to the rapid increase in workers' supply,
08:35 particularly in emerging markets like China,
08:37 East Asia in general,
08:39 that age of moderation
08:41 may be coming to an end.
08:44 The second big shift that we're seeing
08:47 is the shift towards digitalization and artificial intelligence,
08:51 which are spreading at at unprecedented speed.
08:54 Uh,
08:55 I recently saw a chart and I wish I had that one chart up here,
09:00 but it took
09:01 several decades for the railway
09:03 to be propagated.
09:04 It took about a decade for the car to be propagated.
09:08 It still took several years.
09:10 Years for
09:11 traditional consumer goods like the DVD or a CD player to be propagated.
09:16 But now,
09:17 and then it took about,
09:18 uh,
09:19 uh,
09:19 you know,
09:20 a few,
09:20 a few months uh for the first generation of of of uh
09:25 of of uh modern iPhones or or personal phones to be propagated.
09:30 It's only taken
09:32 2 or 3 days
09:34 for chat GPT to be used by the same number of people
09:38 than iPhones were used after several months of introduction.
09:42 So the pace
09:43 of technological change is accelerating,
09:46 and this is good for raising productivity,
09:49 but it also raises major challenges for labor markets and inequality because
09:55 the uses and the access to these technologies are not equally distributed.
10:00 The 3rd big structural shift.
10:03 Is related to geopolitics.
10:06 Because
10:07 of geopolitical tensions,
10:09 businesses and governments are focusing increasingly on
10:13 the resilience of their supply chains.
10:16 They are afraid that some conflict or some tension
10:20 may make them overly dependent on a country that they don't want to be
10:24 dependent on,
10:25 or indeed may interrupt the flow of critical supplies.
10:30 So globalization,
10:32 and this again is what you mentioned Professor Cole,
10:35 globalization is not reversing,
10:37 but it is changing
10:39 and it is very likely diversifying.
10:42 And the 4th
10:44 structural shift is climate change,
10:47 which presents another set of risks to supply chains as a result of
10:51 natural disasters,
10:52 weather-related events.
10:55 And can impact
10:57 public and private sector
10:59 balance sheets as a result.
11:01 In the public sector,
11:02 countries that already have high debt levels
11:05 may be impacted by climate shocks,
11:07 and that may make them unable to sustain those debt levels.
11:11 And in the private sector,
11:12 think of banks that have exposures to climate risks that they didn't think about
11:17 and they didn't put into their risk evaluation when they granted the credits.
11:21 Well now they have to start
11:23 making allowance
11:24 for the growing risk related to climate shocks.
11:30 We will need massive investments to prepare for these climate shocks,
11:35 investments in climate adaptation,
11:37 but countries are not yet doing enough,
11:40 and in part that's because we lack
11:44 Complete knowledge and the right analytical tools to
11:47 guide us what are the priority adaptation investments.
11:50 We know a lot more about mitigation,
11:53 but I would posit,
11:54 in particular for a country like India in the climate zone in which it's located,
11:58 it needs to spend at least as much attention
12:01 on what to do about the impacts of climate.
12:04 Change,
12:05 then how to avoid it
12:06 because to a large extent,
12:08 even a large country like India
12:10 is going to be unable on its own to influence global climate developments,
12:16 but it is responsible for protecting its own economy and its own population
12:20 for the implications
12:22 of the failure
12:23 to stop climate change.
12:25 So,
12:26 what are India's opportunities?
12:28 What does this all mean for India in this period of Amrit Khan?
12:33 First,
12:34 Relating to the demographic changes,
12:36 India is still in the early stages
12:39 of the demographic transition.
12:41 The share of India's working age
12:44 population will continue to expand over the next 3 decades.
12:48 This is therefore a moment of opportunity for India
12:52 because India can offer something to the world that is increasingly scarce.
12:58 A relatively abundant labor force.
13:02 But to realize this opportunity,
13:04 India needs to make sure that it not only has an expanding labor force,
13:09 but it also puts this labor force into employment.
13:13 So what does India need to do to create more and better jobs?
13:18 India needs to address market distortions created,
13:21 for example,
13:22 as a result of the cost of registration for small businesses.
13:27 People in India that are not working officially,
13:30 aren't sitting idly at home.
13:33 Many of them are working,
13:34 but they're working in small unregistered businesses
13:38 just at the margin of survival.
13:40 These are not jobs that are associated with productivity growth,
13:45 with improvements in economic livelihoods,
13:48 and so they're marginal existence,
13:50 uh,
13:51 and,
13:51 and that needs to change for India to capitalize on its demographic opportunity.
13:56 Easing factor market regulations to improve access to land,
14:00 labor,
14:00 and capital in order to boost industrialization,
14:04 improve physical and social infrastructure
14:07 such as roads,
14:08 power,
14:08 storage,
14:09 and distribution,
14:11 as well as medical and education facilities
14:14 to improve connectivity and service supply,
14:18 and then finally,
14:19 investing in human capital development
14:21 to boost the chances of the growing labor force to get a good job.
14:28 Maybe the most important challenge for India to exploit the opportunity
14:32 that comes with the global demographic transition
14:35 is
14:36 India's challenge to bring more women into the labor force,
14:39 something I mentioned at the beginning.
14:42 According to a recent World Bank analysis,
14:44 the female labor force participation rate
14:46 in in India fell from its peak of 32% in 2005
14:52 to just 23% in 2021.
14:56 This compares to an average of 35% in lower
14:58 middle income countries and 56% in upper middle-income countries.
15:04 We may quibble about these statistics.
15:06 Some people say we should count
15:08 the work that
15:10 that women do in the household as part of labor force participation,
15:14 but if we count that in India,
15:16 we should count it in other countries.
15:18 The relative position of India will not improve dramatically as a result.
15:23 In India,
15:23 women stay home because of financial constraints,
15:26 affect their ability to start a business.
15:28 They're worried about their safety,
15:30 they need childcare for their children
15:33 or they do not have the right skill set to meet the opportunities of the labor market.
15:38 Our research also shows that social norms may be holding women back.
15:43 So the conclusion is that India can only
15:46 utilize,
15:47 harness this opportunity of the global demographic transition
15:51 if it manages to solve its female employment problem.
15:55 Second shift,
15:56 technology.
15:57 This is another opportunity for India.
16:00 India has become a leader in digital development across emerging markets.
16:04 It has high technological capabilities
16:07 and has demonstrated how to achieve sustained productivity growth in services.
16:12 At the same time,
16:14 the bulk of the labor force,
16:15 wage costs are still quite low,
16:18 and the pressure for automation,
16:20 which you see in the advanced economies as a result,
16:23 is not so high in India.
16:24 So I think this is a good thing
16:26 because in the advanced economies,
16:27 people are worrying that the progress of digitalization
16:30 will get people out of a job.
16:32 But that's only the case when Cos a lot.
16:35 In India,
16:35 labor doesn't cost a lot.
16:37 So for the next decade,
16:38 India still has a good opportunity to do both,
16:42 to deepen digitalization
16:44 and
16:45 to get more people into the labor force.
16:47 So this gives India a window to prepare,
16:50 in particular,
16:51 its lowest skilled population for the future
16:55 of a digital economy.
16:56 But for this to happen,
16:58 India needs to invest more in its education.
17:02 Policy makers need to expand access to quality
17:05 of education for all parts of the population
17:08 and to help small businesses
17:11 um improve their capabilities to make full use
17:14 of the digital infrastructure.
17:16 And one of the ways in which this is already happening,
17:18 formalization is already happening as a result of the UP.
17:21 because
17:22 small businesses,
17:23 they used not to want to formalize,
17:26 um,
17:26 and now
17:27 if they're not formalized,
17:29 if they're not in the UPI
17:31 they cannot get credit from banks.
17:34 And so they formalized and as a result,
17:36 tax receipts are going up.
17:37 So this process is ongoing,
17:38 but it needs to be deepened and accelerated.
17:42 The 3rd shift.
17:44 Diversification of global supply chains.
17:47 As countries search for alternatives,
17:48 in particular to China,
17:50 India has the opportunity to develop into an alternative manufacturing hub.
17:56 And we see this in some anecdotal,
17:59 uh,
17:59 evidence,
18:00 for example,
18:00 the relocation of Apple,
18:02 uh,
18:02 some of Apple's production from China to India is one such case.
18:07 But when you look at the macroeconomic level,
18:10 Despite of the talk about China plus one
18:13 and the near shoring of French shoring of supply chains,
18:17 India hasn't actually increased the share of FDI
18:20 that it is attracting into the Indian market.
18:23 So we need to move from anecdotes to macroeconomic impacts and for that,
18:28 um,
18:28 uh,
18:29 India needs to further improve its competitiveness.
18:32 One area which is particularly uh difficult in
18:36 India is access to land for businesses,
18:39 um,
18:39 and that has to do with the fact that India is very densely populated already,
18:44 so there isn't a lot of land,
18:45 um,
18:46 but the limited land resources that exist could be used more efficiently,
18:51 um,
18:51 and that would help businesses locate more easily.
18:55 Logistics costs also could be further improved.
18:58 India recently,
18:59 I think the public,
19:00 uh,
19:00 the World Bank published its latest logistics performance index,
19:04 um,
19:04 and India has done quite well over this,
19:07 uh,
19:07 but it is still not ranked in the top 20
19:10 countries,
19:11 so it could still do better.
19:13 A domestic
19:14 competitive ecosystem of suppliers is still needed in many industries.
19:18 So even when you have a flagship company opening an investment in India,
19:23 it wants to be assured that all of the supplies that it needs,
19:26 it can also find in the domestic market.
19:28 Otherwise,
19:29 it doesn't make sense to locate here,
19:31 so the linkages to the domestic suppliers need to be strengthened.
19:35 And
19:36 state level governments have a particularly strong role here.
19:39 It's striking when you see
19:41 how in some Indian states like Gujarat,
19:44 Tamil Nadu,
19:45 Maharashtra,
19:46 foreign investment has already been coming in
19:48 and manufacturing is doing quite well,
19:51 but in other states,
19:52 they're still much further behind,
19:54 so India can learn from each other,
19:56 Indian states can learn from each other.
19:58 So finally,
19:59 let me talk about climate change.
20:01 Here there are both risks and opportunities.
20:04 As I mentioned,
20:05 India is highly vulnerable to extreme weather events,
20:08 water scarcity and rising sea levels.
20:11 To grow sustainably,
20:12 India will need to invest more
20:15 in strengthening its resilience,
20:17 so more into adaptation.
20:20 But India will also need to accelerate its transition to a low carbon economy
20:25 as global demand shifts to greener products.
20:29 For instance,
20:29 the introduction of the carbon border tax adjustment in the EU
20:34 is a risk to India's suppliers unless
20:36 they manage to green their production.
20:40 Climate action will require significant investments,
20:43 but this need not come at the cost of lower growth,
20:47 because to the extent that you invest in new green technologies,
20:51 the cost of these technologies falls,
20:54 and so you can have a productivity impact.
20:57 An economic growth impact and a greening impact at the same time.
21:04 Whether this happens,
21:05 of course,
21:05 depends significantly
21:07 on the design of fiscal and regulatory policies,
21:11 and this is where I think,
21:12 uh,
21:13 uh,
21:14 you know,
21:14 uh,
21:15 students such as you in the Shri Ram College of commerce have a key role to play.
21:21 This is a really complicated area of policy making.
21:25 We're just at the fringes,
21:27 just at the beginning of learning how to design climate policy,
21:31 that is also development policy.
21:33 There's a huge agenda going forward for those of you
21:36 interested to get into policy work.
21:39 But one thing is clear,
21:40 without climate action,
21:42 faster economic growth
21:43 will lead to a rapid rise in emissions
21:46 and a further strain on India's limited natural resources.
21:51 In that sense,
21:51 faster economic growth without climate action
21:55 may not be sustainable.
21:57 So let me wrap it up and put it all together.
22:00 As future business leaders of India,
22:02 I leave you with a challenge.
22:04 If
22:05 India increases female labor force participation.
22:09 If
22:10 it continues to invest in human capital,
22:12 if
22:13 it improves the investment climate to attract more FDI
22:17 and if it accelerates climate action to build resilience against shocks
22:22 and capitalize on the opportunities of the green transition.
22:25 Then
22:26 India's economy can grow
22:29 at the required 8% a year or so
22:32 to reach the goal of becoming a high-income developed country by 2047.
22:38 And each of you
22:40 I hope
22:41 will have a key role to play in this regard.
22:44 What can we do at the World Bank side?
22:47 Um,
22:48 we are supporting India
22:50 with
22:50 a lot of money in nominal terms,
22:52 but very small money for the size of India's economy.
22:55 $4 billion
22:56 roughly a year,
22:58 uh,
22:58 is what we're planning to do.
23:00 But much more important
23:01 is the engagement we have with Indian partners in the knowledge field.
23:06 Exploring what are the right policies to
23:09 make climate and development policy consistent.
23:12 What are the right policies to get more women into the labor force?
23:15 What are the right policies to attract foreign direct investment
23:19 and boost India's competitiveness and productivity.
23:23 Um,
23:24 and we hope that as a result of this knowledge work,
23:28 we understand one of the critical questions for development going forward,
23:32 which is
23:33 how can public policy create an environment
23:37 that encourages the private sector
23:39 to invest in the key development challenges of the future?
23:43 Because one thing we've realized is when we sum it all up.
23:47 The money that governments collect in taxes is not enough to do it on its own,
23:52 and the money that we have in the international
23:55 organizations is clearly not enough to do it on our own.
23:58 And so we need the private sector
24:00 to work alongside with us,
24:02 and this realization has its own challenges for development policy.
24:08 In the World Bank,
24:09 we're going through an evolution roadmap process to try
24:13 and analyze how we can refashion our own instruments
24:17 so that we generate the right kind of development solutions
24:21 to tackle these problems and to get to scale,
24:24 a scale that we with our own resources cannot achieve.
24:27 Um,
24:28 but,
24:28 um,
24:29 uh,
24:30 let me leave you with this thought.
24:32 I hope that over the next 25 years
24:35 India will continue.
24:37 To be
24:38 one of the fastest growing large economies in the world
24:41 and that it will do so in an inclusive manner and in
24:44 a manner that is resilient to the risks of climate change.
24:47 And if it does so,
24:49 it will teach all of us in development
24:51 some very important lessons.
24:52 So with that,
24:53 thank you very much for uh
24:55 uh for uh listening and it's been my
24:58 pleasure and privilege to address you this afternoon.
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