World Bank President Jim Yong Kim, on a two-day visit to the country, says India is “a bit of an exception” in the sense that it has bucked the global trend of sluggish growth. In an exclusive interview, he voices concerns about the world economy and the fallout of Brexit, urges developing countries to wake up to the direct linkage between children’s health and economic growth, and calls upon global leaders to rethink pathways to development in a fundamental way.
The world economy is facing a time of increased risk and uncertainty. Even eight years after the global economic downturn, it remains sluggish. Will it get worse before it gets better?
We have downgraded our growth estimates on a consistent basis. The last estimate we made was of 2.4 per cent global growth. I still don’t think we are ready to say we are looking at a global recession. Countries, especially in Europe, need to engage in structural reforms; the uncertainty, the turmoil is going to get them to focus on the reforms. We need more investment; in this period of uncertainty it’s hard to see how massive investments will happen. We don’t see any immediate change in terms of the prices of commodities. There will have to be some sort of event that will drive high prices in commodities. Like, for example, China’s period of enormous investments; we don’t see anything like that happening soon. We thought prices of oil will go up a little bit but they may remain low for some time.
I am worried about the global economy. Among the things I am worried about is the flight to safety. Even the Japanese yen that’s paying negative interest rates is seeing a huge influx of interest. Germany is paying negative interest rates; they can sell us as many bonds as they want right now. The U.S. as well. All that makes me worried about access to capital for developing countries. The infrastructure investments we want to make in developing countries, so much of it depends on the people’s sense that investing in developing countries is not risky. India is a bit of an exception. India now has more foreign direct investment than China. In the midst of all the turbulence, it seems like for now India is doing very well.
This price forecast is good news for an importer of oil like India.
Almost literally the one bright spot in the world is India. India is probably going to grow around 7.5 per cent this year. We think even higher next year. Brexit had a very temporary impact on the Indian stock market. That resilience tells you something. Had Brexit happened five-six years ago, my guess is the impact would have been greater.
Is Brexit a sign of the failure of the European experiment? Or yet another example of the dissatisfaction over the unequal gains from globalisation and even from the policy interventions of countries for dealing with the downturn?
If you look at the data on who has done well in this globalisation, just about everybody has done well except the middle class in the developed world. It shouldn’t have surprised us that the middle class in the developed world feels that it’s everyone else that’s caused their problem. Add to that the refugee situation. A lot of it is due to the terrible war in Syria but it’s not all Syrian — refugees are coming from all over the place. You are not going to see a decrease in people’s desire to move. Then again, we need to find a way to deal with the problem of finding well-paying jobs so that the middle class in the developed world feel like their lives are actually better than their parents. Global leaders have to rethink in a fundamental way what we do.
Politicians across countries seem to be taking advantage of those feelings…
I am in meetings with finance ministers and central bank governors five-six times a year where we have these discussions: what is the key to increasing productivity? Is it education, is it technology? How do I increase productivity while at the same time creating new jobs for the group of people that is so angry? Are jobs going from the developed world to the developing world? They are. When industries come back, they are not going to come back with lots of jobs. This is a fundamental problem we have to face. In Switzerland, they debated a basic universal income and rejected it but there is this [ongoing] discussion in the U.S.
You are planning to ask the World Economic Forum to publish every year the stunting figures from across countries. Why?
In just about every developing country I’ve been to there is not enough appreciation of the direct relation between investing in health, education, social protection and economic growth. Evidence now is overwhelming — we didn’t necessarily have this evidence 20 years ago — that investing in the first 1,000 days of a child’s life from the time the mother gets pregnant is critical. One of the arguments in India always was that Indians are shorter. That doesn’t apply because they did studies — which included Indians — where they found out that every child in the world has a potential to grow 25 cm in the first year and 12 cm in the second year. That’s the standard. The fundamental structure of the brain is set in years 2-5. When you start off with fewer connections (of neurons in the brain) your ability to earn in the future is without question impacted.
We have to look at what are the paths to economic development that will be open to developing countries. The key to productivity growth is technology: artificial intelligence, robotics, 3D printing. That also means jobs are going to be eliminated. India has a services-oriented economy that can be more effective but for that, every single young person has to be able to compete in the digital world. So investing in children is the right thing to do.