IMF executive director envisions India as a top-two global economy with strategic policy choices

KV Subramanian, the executive director of the International Monetary Fund (IMF), believes that India has the potential to become one of the world's top two economies, provided it makes the right policy decisions in the next 20-25 years.

“I believe that next 20-25 years is an opportunity for India that comes once in a few centuries. We have the opportunity to grow and become possibly one of the top two economies. So for the next 25 years India cannot afford to miss, we have to get our policy right, because an opportunity like this comes once in a few centuries,” Subramanian said in an interview to CNBC-TV18.

In a recent statement, Prime Minister Narendra Modi expressed confidence that India will ascend to the position of the third-largest global economy during his third term in office. He affirmed this with the words, "Yeh Modi ki guarantee hai."

When the BJP government assumed power in 2014, India held the 10th position among the world's economies, and it presently occupies the 5th rank in terms of GDP.

Regarding India's growth prospects, Subramanian expressed optimism, stating that a 6.5 percent GDP growth rate should be attainable despite global economic uncertainties. He pointed out that private investment in India has reached a 14-year high, and government infrastructure spending is continuing, both of which contribute positively to economic growth.

In July, India's retail inflation exceeded the Reserve Bank of India's (RBI) acceptable threshold of 6 percent, reaching a 15-month high of 7.44 percent according to government data released on August 14th.

Subramanian emphasised that while the latest inflation figure showed a rate of 7.4 percent, a significant portion of this increase was driven by food inflation, which monetary policy has limited control over. His recommendation is to strike a balance between promoting economic growth and ensuring that inflation remains within manageable levels.

“India’s monetary policy I think will be focused primarily on our own inflation front. Even though the latest inflation print was 7.4 percent, a large part of that was driven by food inflation and that is something that monetary policy cannot control. So I would suggest that India should continue to focus on giving as much momentum to growth as possible while making sure that inflation does not go too much off the hand,” Subramanian said.

Recently, Shaktikanta Das, the Governor of the Reserve Bank of India (RBI) indicated that inflation could begin to ease starting in September. However, Das also emphasised that the RBI will maintain its vigilance and not lower its guard.