Exclusive | India can be a $10 tn economy in the coming decade if it continues with reforms: WEF head Borge Brende

World Economic Forum president Borges Brende (R) speaks with Firstpost managing editor Palki Sharma on a range of issues that hurt the planet and about the ways to overcome them

The global economy is going through a challenging time with a spike in global conflicts and concerns over rising inflation. The post-pandemic recovery is increasingly looking challenging. So how can countries around the world press the reset button and put their economies back on the growth track? World Economic Forum president Borges Brende, in a no-holds-barred interview with Firstpost managing editor Palki Sharma, explores the options that lie ahead of us. Edited excerpts:

We’re living in a world with two major conflicts, two major wars rather and multiple other conflicts and deepening divisions. First of all, what impact do you see on the global economy in the year ahead?

So, the global economy is doing much better than we expected. So, we were afraid that we’re going to be faced with a recession this year. And so, we do now expect the global economy to grow more than 3 per cnt. What we are, what we are faced with instead is kind of a global geopolitical recession.

And we do hope that those conflicts that you were mentioning — Ukraine, Gaza — don’t escalate in a way where they will also have a severe negative impact on trade and growth.

How do you think India is faring in this larger global environment? And what is your assessment of India’s growth story and trajectory?

So India is also an economy that, of course, relies on other countries and the global situation. But growth is back, even if it’s lower than the trend growth. In the last three decades, trend growth was close to 4 per cent. No, we are a little bit more than 3 per cent. India is doing incredibly well. I have to say that India is the fastest growing among the large economies in the world.

If India continues with its reforms, I think India in the coming decade can become a $10 trillion economy. And what does that mean? It means that India will be the third largest economy in the world, and it means that more people get opportunities for jobs and a better livelihood. We should not forget that India has due to this growth that we have also seen in the few last years, eradicated poverty at an impressive scale.

Four hundred million people has been lifted out of extreme poverty. This pace was seen in China in the past.

And India is a democracy, so with all the compulsions or the trappings of a democracy to be able to achieve this is interesting. This $10 trillion figure is something that you have mentioned in the past or as well, you’ve said that India is on track to becoming a 10 trillion economy in the coming years.

What is the X factor that you see, uh, in the Indian economic landscape? Why is it able to buck the global trend of slowdowns? Is it the policy decisions? Is it larger geopolitical forces or is it a combination of the two?

All that bow, I would say the reforms have been important. We’re seeing that infrastructure is changing very fast and (many) new airports have come up. We are also seeing trains and roads.

We are also seeing that the Indian economy is opening up to foreign direct investments and (offering a) more level playing field. Of course, India has also benefitted from this. There are diversification of value chains. Many countries say they cannot have just 80 or 90 per cent of products being manufactured in one country.

And you also have this so-called friend sharing that India is benefiting from, especially, I think, the largest economy in the world, the US are also increasing manufacturing in India. Just look at Apple. There’s not a lot of Apple iPhones produced in India just a few years ago. I know there’s like 25 per cent of their production.

And I would also add that we’re seeing stronger growth in services and the digital economy than the traditional manufacturing and India is stronger on services and digital. The fact that India has quite a lot of digitally literate population, especially the young, is working in its interest. And also of course, this digital identity was important in this broader context.

So, from a policy perspective, what would your prescription for New Delhi be? More of the same.

More of the same. I would also make sure that the revenues that will come from a growth of 8 per cent are invested in areas where it further increases India’s competitiveness in the future. I already mentioned infrastructure.

There is a way to go on the roads and airports and also in the maritime sector in the ports. But for me, maybe the most important thing is education. India is fortunate to have part of its population also able to handle several languages, including English. We will need to see in the years to come that every child in India Uh, has access to schools where they will learn basic math, read and write.

This is an area for investments and I think this will be coming. I think (we need to) get rid of red tape, unnecessary bureaucracy. I think also good governance is important. The continuation of reforms to eradicate corruption will also be important.

Right. Final question on India and I’m going to quote from World Economic Forum’s founder and executive chairman, Klaus Schwab.

He said, “India is promoting a just and equitable growth for all in the world during its G20 presidency while also making significant progress on the most pressing domestic challenges. India’s G20 presidency comes at a crucial time. Prime Minister Modi’s leadership is critical in this fractured world.”

Do you agree?

I think it was very well said from our founder and chairman, Professor Klaus Schwab. India’s G20 presidency showed that India is also capable of bringing different players together and agree on steps forward. I think the diplomatic role and importance of India is also growing because there is correlation between this and the economy.

So, this is in many ways, India’s century. As I’ve been saying before, it is also Asia’s century. But that is also underpin now with exceptional growth and development in India. And now it’s up to India to continue this path of growth, investment and also prosperity.

The other big player in Asia and the other growth engine in the world, of course, is China.

It is going through a tough time. Every expert has their own take on what is ailing China. What would you say is the reason China’s economy is struggling to gain momentum?

It’s true that China in the past used to have growth numbers like India is seeing now. Even higher. For some years, they were close to 10 per cent growth and they were at eight.

We do, though, expect that China will grow close to 5 per cent this year. And being such a large economy already, the second largest economy in the world, together with the US, they’re almost, 40 per cent of the global economy. Five per cent is not bad. So, I think that China is in a situation where they will have to continue with reforms.

They will need to pivot from growth on investment in real estate and also infrastructure, into areas where it will increase their competitiveness for production higher up in the value chain. They will also have to implement new technologies like generative AI very fast because their workforce is for the first time shrinking.

So some back offices also have to be then done by the new technologies. Also, the fact is that China is the largest manufacturer in the world and post-COVID and during COVID we saw quite a good demandfor traditional goods. But now we’re seeing that. The demand is increasing, uh, in services and also, uh, digital trade.

So, China will need to pivot more into these areas. China also has a huge opportunity with a big home market with 1.4 billion people. And I think they’re also reflecting on how then to increase the demand in their own market. I think that will be important.

It’s interesting that you mentioned AI, because there’s a lot of apprehension of what AI brings to the table. We do know that that some jobs are being taken over. They’re being automated on the job market is going to look significantly different in in the next couple of decades. How do you foresee?

How do you foresee the overall impact of AI on economies? And what do you think the job market will look like going forward?

It is, of course, a mixed picture. That’s always been the situation when there are new technologies that are so consequential. That are really out there. We saw it with electricity.

We saw it with the internet, you know, in the country where I’m based now in Switzerland. Ninety per cent of the population used to work in the agricultural sector. I know it’s 3 per cent and they’re producing more food than they did back when 90 per cent was in the agricultural sector. And, you could say, where did all those farmers go?

Of course, they are working in different sectors now, uh, higher up in the value chain that can also pay higher salaries. So, it’s increasing also the welfare. So, what will happen with the AI? So, for some of the jobs can now be replaced by artificial intelligence, back offices and all that. But the people who were having those jobs should then do jobs that can increase productivity further.

Productivity is a core of prosperity. So AI can increase productivity with as much as 30 percent in the coming years or the coming decade. But we also need to upskill and reskill people that are losing their jobs to move into other areas where they can be paid better. That is like the history of the whole industrial revolution with AI though.

And that is a big caveat. There are also areas of concerns related to the fact that it’s unregulated. There’s no traffic rules on AI and AI should not take the control of human beings. It should work in the interest of humankind. So, if you get algorithms that spin out of control, if you get autonomous weapons, robots et cetera where humans are not in control, that’s quite a scary picture.

So the fragmented world is unfortunately leading to a situation where there’s less likely that we can agree on those traffic rules. And that’s…

In the beginning of our conversation, you spoke about the risk of a geopolitical recession. Now we’ve seen, the US pass another aid bill. They are going to give more money to Ukraine to fight the war.

Some of that money will also go to Israel. So, the wars look like they’re unending. Do you think that commerce can play a role here? Do you think that if we tie the economic fortunes of some of these players, it will mitigate the risk of future conflict?

I always believe that trade and also interactions reduce the risks of war. Look at Europe, where all the, the two first world wars started between European countries. Germany, France, UK and also back then the Soviet Union. So, the single market has led to a situation at least where the core European countries now are very deeply allied. So I hope that we can continue to trade and integrate more.

That’s not really the case today, though. So, the words have to end. So hopefully there will be a solution to the situation in Gaza soon. And also, there will be an end to the war in Ukraine. But what we’re all worried about is the escalation. We were very close to an escalation between Iran and Israel that could have led to a full-fledged conflict in the Middle East and the impact would have been terrible.

You could have seen oil prices of $150 per barrel. And that would mean that the global economy would be in a very, very fragile situation. It could kill the growth that we are seeing. No, the growth is not strong, but it’s there. What we have to avoid is a decade of tepid growth, low growth.

So we have to avoid the repeat of the 70s and the geopolitics is probably the biggest threat in addition to the debt. We haven’t seen this kind of debt level globally since the Napoleonic Wars, and that’s a long time ago, so we really, really need to also be able to use growth to also reduce debt.

In fact, global agencies like the IMF and the World Bank have also been raising the concerns over rising levels of debt, especially in the developing world. What sort of risk do you think this unsustainable debt to the global economy?

It’s a risk also for the banks. We saw in the big financial crisis that solid banks is very important.

The funding of the banks globally is better than back then. We don’t have this subprime situation, but the debt situation has to be handled. But the problem is that the growth is pretty low. To go into an austerity situation now would also not be a good thing because we still have to support a growth, but the interest rates are also high because of the inflationary pressure. That is there.

And the inflationary pressure is also partly a result of global value chains where we see that you’re not necessarily buying the products where it’s cheapest. You also factor in other factors like the situation you have in the Panama Canal, the situation with the Suez Canal. That adds to this. But we will need in the coming decade to really, really work on how to reduce, unsustainable debt. And hopefully when the inflation gets lower, the cost of this debt will also go down. But a lot of this debt was taken and committed in a situation where there were serial interests. And when you have 4 per cent interest, the interest rates have now become the largest budget cost in many developing countries.

And, this is very worrisome. These money should have been invested then in school, education and health and infrastructure instead.

This year’s Davos summit was themed rebuilding trust. Do you think people have lost faith in their leaders and governments, especially after the pandemic? And if that is the case, how can that trust be regained?

So I think it’s a nuanced picture. We did come through the COVID pandemic in a way where we saw that through global cooperation, we were able to develop a vaccine, and a new kind of vaccine very fast. That shows the strength of the technology. But, of course, many developing countries were in a different situation.

And I think, a bit of the difference between North and South was also due to this unfair distribution of vaccines. But, moving forward, I do think that we will have to then rebuild trust. And we also have to see that. We can achieve so much more if we work together and not compete.

But I think we are between orders. We had one order in the past like the post-Cold War order. We don’t know what a new order will be, but hopefully it will be built on the UN charter and, and some important principles, but in a situation between orders, there’s also always a competition.

So we have to make sure that in areas that are critical for humankind, we still can collaborate. Look at climate change, the heating of our planet, look at cyber, space and cybercrime. It’s cost us now $2 to $3 trillion a year. That’s a lot of money. We also see it on AI regulation. So hopefully, and what we saw in Davos, that we brought people from different camps together and said, even in the fractured, fragmented world, we will have to find areas where we have to agree because we are really in the same boat and we have no planet B.

You just have this planet.

It’s interesting you say this because the relevance of Davos has been questioned in recent times and critics call it an expensive gateway for the world’s most powerful. Are you proposed to combat this perception and make it more people centric?

I, of course, don’t agree with that perception.

We had a very successful Davos and it is in my view, the international meeting with the most diverse groups. We have civil society, we have social entrepreneurs, we have, uh, young, uh, global leaders, we have business and governments together, and I think that the complexities of the challenges, uh, we are faced with, we have to do it in a multi stakeholder way.

It can’t only be governments then discussing a text or business. I think the World Economic Forum is an impartial, neutral organisation that also brings US, China, India and Europe together. And we saw in Davos that we had 50 concrete outcomes. We had alliances coming together. What people then can say is this is the elite.

No, it’s not the elite, but this It’s the elected leaders of the world. It’s the CEOs that head the big companies. And then there’s the leaders of a lot of civil society. You can say that the leaders come together and some people then say it’s the elite. No, these are very important decision makers that we will need to have to work better together, more together to secure what I just mentioned our planet because we don’t have a Planet B. We have this planet A and we have a lot of challenges that we will have to deal with together.

And the World Economic Forum says that transitioning to a sustainable carbon neutral future would take $13.5 trillion in investment globally. Where do you see this money coming from?

Do you think wealthier nations can be forced to open their checkbooks?

I would say that the problem with climate change is that we too frequently then focus on the cost of action. But the fact is that the cost of inaction today far exceeds the cost of action. Because we are seeing many places on our planet, water scarcity, terrible weather situations, droughts and the heat that is killing not only animals, but also people.

So we really no need to invest. And, it is true that we probably to reach net zero by 2050, we will need to invest around 2 trillion US dollars a year. That is $2 to 3 billion or it’s less than 2 per cent of the global GDP and to invest less than 2 per cent of the global GDP in the future of our planet and in livelihood, I think is not a lot.

And that investment can also create a lot of growth and new job. Look at solar and wind. Ten years ago, solar was 10 times as expensive as today. Today, you can roll out solar panels in many places in the world and it’s competitive. It’s cheaper than coal, it’s cheaper than oil, it’s cheaper than gas and it doesn’t emit, CO2 at all.

So, it doesn’t come with a negative piece. But, of course, we can’t change our energy delivery overnight. The whole industrial revolution was based on a fossil fuel situation. So we now have to pivot and that means that we have to invest. We have to also focus on energy security, energy access, but this has to be decoupled from growth in CO2 emissions in the future if you don’t want a planet that is on fire.

That’s the diplomat in you speaking. You’ve not answered my question. Who’s going to pay for this action? I understand that the cost of inaction is higher, but someone will have to bear the cost of this action. And I think that’s where the world is divided.

Yes. So no, that’s what it’s. I’m glad you followed up.

As I said, $2 trillion is not that much money. It is like just you know, if you look at what we spend on defence. So I think we also have to pivot the global development assistance much more in this field and global, uh, development assistance, uh, is, uh, hundreds of hundreds of billions.

We also have to start to get the private sector on board. This can not only be sold by governments alone because as we mentioned earlier, governments are also indebted. But companies should then be incentivized to also invest more, in decarbonization. And there are different ways of doing it.

Today, you can emit whatever you want in many countries, and it’s even subsidised by their governments. We do have to make sure that if you invest in renewable solutions and you decouple growth from growth in CO2, there has to be incentives. And look at the US though, invested now a trillion US dollars in the So-called IRA, this Inflationary Reduction Act that shows that nations are taking this more seriously in Dubai at COP28. We reached also the $100 billion in yearly investments in developing countries. We also have been able to establish the fund for them despite loss and damage, but we’re not there yet. But, count on the World Economic Forum. We will use every opportunity to push for more investments.

But we’re also arguing that investments, the $2 trillion you need annually is possible and it is not the cost. It is an investment in the future.

You recently also talked about slobalization. That is a slowdown in global trade. what do you think are the major factors causing this and how big a role do you think politics plays here?

Though we are very worried about that the fact that trade is growing much slower than it used to do in the past. For three decades, trade was the engine behind growth. So trade grew much faster than the global GDP. Today, trade is growing around 3 per cent in the global economy. GDP is growing like 3 per cent.

1, 3, 2. If this continues and there is more protectionism, we can see that we might end up in a situation where we have overall lower growth for a decade. So we will need to have trade moving forward, we have to avoid new protectionary measures. We also have to follow what we have done in the past that it is really about competitive advantages.

If you are good at producing something, you should do that and you should buy from them, and others are good at producing other things. This globalisation is also the success factor behind globalisation. Look, we doubled the global GDP in 30 years, and we eradicated poverty like we’ve never seen due to this.

But of course, globalisation also has to be reinvented. So, I would say, re-globalisation is a lot better than slow globalisation. Re-globaliasation is building on the successes. But of course, we also have to adjust. We have to have better and more resilient global value chains.

We had this policy just in time. But we also have to factor that in just in case. But that will also, of course, lead to higher prices off the product. So we have to be careful. The pendulum doesn’t go from one side to the other and kill growth. I hope that we don’t end up in like beggar than neighbour situation, but more like continue to prosper than the neighbour.

And if you do that, it’s also going to prosper you.