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Global Financial Stability in the Age of Low Growth and Interest Rates: What is New?

A low-growth, low-rate era, accompanied by increased political and policy uncertainty, is creating many challenges for policymakers, banks, and corporates in all parts of the world. In this seminar, Dr Ratna Sahay, Acting Director of the IMF’s Monetary and Capital Markets Department, presented the key findings of the IMF’s October 2016 Global Financial Stability Report that analyses these challenges and offers solutions for fostering stability. The presentation focused on risks to the current outlook, the new environment and challenges from the perspective of advanced economies and the emerging markets and the measures that can ensure financial stability. NCAER research faculty and guests from institutions across New Delhi, including, Dr Bimal Jalan, Former Governor of the Reserve Bank of India, joined the discussions. Dr Anusha, Associate Fellow, NCAER presented her views, as the discussant for the seminar.

In emerging markets, including India and China, low interest rates and the global search for yield present unique opportunities for overly indebted firms to restructure their balance sheets. India’s top corporates remain among the most leveraged in emerging markets, increasing bank vulnerability and casting doubts on a smooth process of deleveraging. In advanced economies, the inability to adapt to this new environment could undermine the health of financial institutions and delay economic recovery. The IMF Report finds that short-term risks to global financial stability have abated since April 2016, but that medium-term risks continue to build. Financial institutions in advanced economies face a number of cyclical and structural challenges and need to adapt to low growth and low interest rates. Since these challenges are unlikely to be resolved by a cyclical recovery, there is need for more deep-rooted reforms and efficient macro management. In addition, an unsettled political climate in many countries, lack of income growth and rise in inequality make it more difficult to tackle legacy problems besides exposing economies and markets to shocks. The IMF Report assesses how improvements over the past two decades have raised the resilience of financial systems in many economies and how these benefits strengthen the case for further reform.

Ratna Sahay is the Acting Director of the Monetary and Capital Markets Department at the International Monetary Fund. She joined the IMF in 1989 and has worked in eight IMF departments since then. She has led surveillance and programme missions to several emerging market and low income countries, headed analytical projects and policy papers, and represented the IMF in various fora. She has published widely on financial markets, inflation, economic growth, fiscal policy, debt sustainability, financial inclusion and related issues. Prior to joining the IMF, she taught at Delhi University, Columbia University, and New York University. Sahay holds a PhD in economics from New York University.

Anusha is Associate Fellow at NCAER.  Her recent PhD research focused on using frequency domain time series methods to understand business cycles in India  and their co-movement with credit in India and the US.  Anusha’s broader research interests include business cycles, financial markets and applied time series analysis in macroeconomics.  She is currently working on developing an Indian equivalent of the FAO’s COSIMO model to project the short and medium-term agricultural outlook for India.  She received her PhD in economics from the Indira Gandhi Institute of Development Research and a MA in mathematics from Delhi University.

Skilling India: India’s 3E Challenge of Education, Employability, and Employment

As per the Census 2011 data, India has 730 million people in the age group of 15-59 years, which gives India an opportunity to reap a significant demographic dividend. The government’s skills development policy (2015) notes that India is “presently facing a dual challenge of a severe paucity of highly-trained, quality labour, as well as non-employability of large sections of the educated workforce that possess little or no job skills”.  The situation gets further complicated given the fact that about 93 per cent of the workforce is in the informal sector, and it is difficult to track their skills and impart the requisite training to them. The estimated rate of job creation in the informal sector is higher than that in the formal sector, thus creating relatively low productive jobs. India thus needs to equip its workforce with employable skills and knowledge.

NCAER has undertaken the J.P. Morgan New Skills at Work-India (NSAWI) program under NCAER Labour Economics and Research Observatory (N-LERO). It seeks to focus on the three critical elements of education, employability, and employment. The study aims at contributing both to policy as well as practice pertaining to employability, labour markets and the skilling supply chain. The objective of Phase 1 (out of three phases) of the study was to develop a sharper understanding of the challenges pertaining to jobs and skills – what is working and what is not, and what are the policy recommendations.

This second consultation workshop on this study was held at The Claridges in New Delhi. The workshop was inaugurated by Dr Rajesh Chadha of NCAER, who welcomed the participants and introduced the programme.

Dr Biswajit Goldar, Institute of Economic Growth, chaired the first session on “Skill in India: The 3-E Approach”.  Dr Bornali Bhandari, NCAER, introduced the concept of skills, and pointed out that a broader framework of skills, including cognitive, physical, interactive and vocational skills, are needed in the country. She also discussed the inherent challenges in measuring skills. NCAER has developed an index based on the 3-E concept to assess the skill levels of 21 major states in the country. Ms Tullika Bhattacharya, NCAER, delineated the level of skills employed by 24 key sectors identified by the National Skills Development Corporation (NSDC). The novelty of the index lies not only in the categorisation of skills but also in the fact that it takes into account all three types of education, that is, general, vocational and technical education. Dr Abhiroop Mukhopadhyay of the Indian Statistical Institute, Delhi, argued that education does not translate into actual usable skills though it may be equated to capability. He further remarked that there is a need for a focused discussion on women, especially since most women in India are not participating in the labour force even though their educational aspirations are similar to those of men. Dr Mukhopadhyay also pointed out that while at the macro level, there is a shortage of skills, at the micro level, people do not really want to out-migrate from their local cities and towns. Dr Rajesh Chakrabarti of the Wadhwani Foundation gave critical comments on indices and their relevance. Mr Anil Kumar of the Axis Bank Foundation discussed the challenges of skilling in the rural sector.

The keynote address at the Conference was chaired by Dr Rajesh Chadha and delivered by Mr Pramod Bhasin, Founder and Vice Chairman, Genpact and Chairman, The Skills Academy.  He highlighted that employment is a vastly under-served and under-researched area in India.   The Skills Academy has trained multitudes in domain skills, lifestyle skills and employability skills. The National Skills Development Corporation (NSDC) has made a very robust contribution to the skilling effort. India would account for 35 per cent of the entire world’s workforce in the next 10 years, and educating this workforce and imbuing them with the requisite skills for employment would be the biggest challenge that India would face in the future. India largely exists in the small and medium sectors. The workforce, therefore, needs to be trained for employment in these sectors. Since 60-70 per cent of the people want to work in the government because of the perpetual job uncertainty in the private sector, the logistics of training needs to take this into account. Industries do not provide quality jobs or offer enough job support for the workforce in the country. It is imperative to skill women and to empower them by imparting appropriate training in technology and other areas of employment.  There is a need for skills mapping and addressing the skill gaps.

The third session of the Conference on “Education and Employability: Convergence or Divergence?” was chaired by Professor Jandhyala B.G. Tilak, of the National University of Education Planning and Administration. He remarked that the topic of the discussion reminded him of erstwhile debates on whether to converge mainstream with vocational education. While Ms Mousumi Das, NCAER, and Dr Bornali Bhandari discussed the current challenges in the education and vocational skills sectors, the various discussants emphasised the need for convergence between the two types of education. Dr Ankush Aggarwal of the Indian Institute of Technology, Delhi, averred that engineers are hired in companies, where they do not use the core skills that they are trained in. Mr Raj Gilda of Lend-A-Hand India and Mr Abhishek Gupta, Adviser to the Delhi Government, talked about their respective experiences in bringing vocational education to school education in Maharashtra and Delhi respectively. Mr Gupta outlined the logistics and infrastructure issues in Delhi, such as the challenges of transporting students from school to the laboratory. The key question posed by the discussants was: Are children at a young age, such as a 14-year old in Class 9, mature enough to decide their career options? Mr Jagmohan Bhogal of the Quality Council of India remarked that the goals of the two types of education, that is, mainstream and vocational education, are different, and the two ought to be brought together through careful convergence.

Mr Dilip Chenoy of the Sant Longowal Institute of Engineering and Technology, and erstwhile CEO of NSDC, chaired the fourth session of the Conference on “Employability and Employment: Scaling Up”. Dr Pallavi Choudhuri of NCAER discussed the importance of recognition of prior learning (RPL) and the challenges faced by Micro, Small and Medium Enterprises (MSMEs), especially the shortage of skilled labour.  Dr Saurabh Bandyopadhyay of NCAER talked about the challenges posed by labour laws.  The four panellists of this session included Neeta Das of the Confederation of Indian Industry (CII), Mukesh Gulati of the Foundation of MSME Clusters, Jürgen Männicke of iMOVE, and Rahil Rangwala of the Michael and Susan Dell Foundation. Both Mr Gulati and Mr Rangwala asserted that skilled labour is not one of the key shortages of the MSME sector, and pointed to its inter-linkages with other challenges in that sector, including access & use of technology, access to formal bank credit and access to markets. Another key element is the need for counselling of the MSME owners. The panellists commented on the ambiguity that though industry complained about shortages of skilled workers, it was still not willing to hire certified people for a higher wage versus uncertified people. Further, the Sector Skill Councils are not able to predict the exact number of jobs that would be available in each sector. Jürgen Männicke pointed out similarities between the German model and the Indian model. However, unlike in India, German MSMEs are hiring a majority of the apprentices. In addition, German companies are mandated by law to share data and to become members of Industrial Chambers

The last session of the Conference, a policy roundtable on the impact of technology on job creation, was chaired by Dr Rajesh Chadha of NCAER.  Mr Chauncy Lennon of J.P. Morgan, Mr Achyuta Ghosh of NASSCOM, Mr Ambarish Datta, MD and CEO, BSE Institute Limited, and Mr Santosh Kumar Mehrotra, Professor, Jawaharlal Nehru University, were the panel discussants in this session. The panellists agreed on the need for adopting a sectoral approach to deal with the challenges. It was pointed out that though a majority of the people are not even part of the formal sector, this is not the main problem envisaged. Instead, the focus should be on upskilling workers in the other sectors even as some other types of jobs are expected to dry up.

In an exclusive interview to NDTV, Dr Shekhar Shah outlined the objectives of this study and the key inferences from the first phase of research. He also discussed the challenges of Skilling India in context of its vast demographic dividend and drew up alternative scenarios for the jobs future of the country.

Training Workshop on proposed Impact Assessment Study of Digital India Land Records Modernization program (DI-LRMP)

NCAER organized a training workshop for the proposed Impact Assessment Study of Digital India Land Records Modernization program (DI-LRMP), as a follow up to an earlier preparatory meeting held on 30 August, 2016. The workshop was conducted by Deepak Sanan who is the technical advisor for this proposed study and was chaired by Prof. D B Gupta, a Senior Consultant at NCAER.

Researchers from NCAER, Indira Gandhi Institute of Development Research (IGIDR) and National Institute of Public Finance and Policy (NIPFP) attended this workshop, wherein, IGIDR was connected through a video call. The workshop was also attended by Sudha Keshari (Economic Advisor) and Vipin Bansal (DIGF) from the Department of Land Resources (DoLR), Ministry of Rural Development.

The proceedings of the workshop enabled firming up the questionnaires and other survey instruments for data collection and analysis. The next consultation on sampling and related issues pertaining to the field survey for the project will be held on 7 October, 2016 at NCAER.

What does China`s Rebalancing Mean for the Rest of Asia?

In recent years, China has moved to “rebalancing” its economy away from a dependence on exports and investment to increasing domestic consumption. What will a rebalanced China look like? What will the rest of the world, and Asia with a rebalanced China in it, look like? This seminar organised by NCAER addressed these issues with Dr Paul Gruenwald of S&P Global Ratings based out of Singapore. Dr Ramgopal Agarwala (former World Bank) and Dr Soumya Bhadury (NCAER) joined as discussants. Dr Shunli Yao (former NCAER) also joined the discussions via video conferencing.

China’s rebalancing story has two sides: (i) changes in the composition and sources of Chinese GDP growth, and (ii) how the rest of Asia (and the world) would adjust to those changes. China is not the textbook “small open economy,” and changes in China are already having measurable impacts on all its trading partners. A major challenge for analysts is to figure out the impact of these developments for the rest of the Asia-Pacific region. Does the region gain or lose from China’s rebalancing towards more consumption and service-led growth? How will individual economies in Asia fare? And what would be the implications for individual sectors that are important for Asia? Taken together, which factors and policies will be most important in determining the countries that will themselves successfully “rebalance” around China? The talk by Dr Gruenwald and following discussions with a host of participants concentrated on these issues.

Paul Grunewald is the Chief Economist for Asia-Pacific at S&P Global Ratings based in Singapore. Grunewald previously worked with the ANZ Banking Group and was also its Chief Economist for Asia-Pacific. He was earlier with the IMF for nearly 16 years, leading the team producing the IMF’s Asian Regional Outlook Reports. Paul has a PhD in economics from Columbia University and a bachelor’s degree in economics and mathematics from the University of Texas.

Ramgopal Agarwala is presently Honorary Senior Fellow at NCAER. In addition, he is the Chairman of Pahle India Foundation and was until recently, Distinguished Fellow, RIS. He has worked in various senior positions in the World Bank for 25 years with his last posting to Beijing being as the Chief Economist of the World Bank in China. Ram has a PhD in econometrics from Manchester University and an MA in economics from Presidency College, Kolkata.

Shunli Yao is Director of the Institute for Applied International Trade, a Beijing-based independent think tank. He specialises in international economics, with a particular interest in Chinese foreign trade. He is a founding member of the Asia Pacific Research and Training Network on Trade (ARTNeT). In March 2014, he was a visiting fellow at NCAER. He has taught at universities in Australia, Hong Kong and mainland China. Shunli holds a PhD in economics from the University of California at Davis.

Soumya Bhadury has recently joined NCAER as an Associate Fellow. Prior to joining NCAER, Bhadury taught at the University of Kansas while working on his PhD there on bringing money back into monetary models of exchange rate determination. Bhadury’s interests broadly lie in macro and international economics with a special focus on the exchange rate, and monetary theory and policy.

Can India’s Financial Sector Finance Double-digit GDP Growth?

In the week that will see a major change of guard at the Reserve Bank of India, and against the backdrop of a new monetary policy framework for India that is rapidly being put in place, NCAER organised a discussion with Dr Frederico Gil Sander (World Bank, New Delhi) based around the World Bank’s June 2016 India Development Update: Financing Double-digit Growth. Dr Ila Patnaik (NIPFP) and Dr Pallavi Choudhuri (NCAER) joined as discussants.

Indian GDP grew at 7.6 percent in 2015-16, up from 7.2 percent a year ago, making it the world’s fastest growing major economy.  But India’s ambition is to accelerate GDP growth to double digits.  Does India have a financial sector that can finance and sustain such spectacular growth?

Financing such growth requires a strong financial sector to grow savings, allocate them to more productive investment opportunities, boost productivity growth, and guard against volatility.  India’s financial sector has performed well in several respects, evolving from largely state-control to greater competition from private banks, bank capital in excess of regulatory requirements, stronger regulations, and overall resilient real credit growth. But there are now deep concerns about the growing volume of non-performing assets (NPAs) and declining credit growth in the public sector banks (PSBs), as well as the muted transmission of monetary policy to the real economy, with lending rates sticky and interest rate spreads growing. The Update suggests two key reforms. First, accelerating structural transformation towards more market-orientation and competition by providing a roadmap for easing government mandates on banks. Second, addressing the NPA challenge, both by recapitalization of PSBs and providing tools for banks to manage stressed assets, and through stronger governance of both commercial banks as well as the corporate sectors that have generated the largest share of NPAs. The seminar provided a platform for lively discussion on the topic.

Frederico Gil Sander is the World Bank’s Senior Country Economist based in New Delhi. He was most recently the Bank’s Senior Country Economist for Malaysia and has worked on macro and debt management for Thailand, Laos, Cambodia, and Myanmar, and on debt relief for low-income countries. Before joining the Bank he worked on emerging market debt and capital markets at the New York firm of Bear Stearns.  Sander has a PhD in Political Economy from Princeton’s Woodrow Wilson School.

Ila Patnaik has been a Professor at the National Institute of Public Finance and Policy since 2006. During 2014 to 2016, she was the Principal Economic Advisor in the Ministry of Finance to the Government of India. Prior to joining NIPFP, she worked as the Economics Editor at the Indian Express. Patnaik started her professional career as an economist at NCAER in 1996. She has a PhD from the University of Surrey.

Pallavi Choudhuri is an Associate Fellow at NCAER.  Prior to joining NCAER, Choudhuri taught at Grand Valley State University and the University of Wyoming. Choudhuri has a PhD from the University of Wyoming.

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