The global recovery is "too slow, too brittle and too lopsided", the head of the International Monetary Fund (IMF) said in India on Monday, describing Asia's third-largest economy as a rare bright spot on a cloudy global horizon.
In a speech in New Delhi, IMF Managing Director Christine Lagarde said that monetary policy in the world's leading economies was out of step and, even if well managed, could cause "excessive volatility" in international financial markets.
"Looking ahead, something better may yet come on the back of low oil prices and interest rates," Lagarde said in a speech to women students. "Still, there are significant risks to this fragile global recovery."
The first of those was what Lagarde called "asynchronous monetary policy" in advanced economies, with the United States and Britain normalising their stances while the euro area and Japan increase their monetary stimulus.
Her warning came on the eve of a meeting of the US Federal Reserve that is expected to signal an increase in ultra-low interest rates as soon as June. Higher US interest rates could trigger capital outflows from emerging markets awash with cheap dollars.
"More than six years after the global financial crisis, the world will grow by a sub-par 3.5 per cent this year and 3.7 per cent in 2016", Lagarde said, reiterating recent IMF forecasts.
The euro area and Japan were at risk of remaining stuck with low growth and low inflation, she said making it difficult to reduce unemployment and debts, and raising the risk of recession and deflationary pressures.
Emerging markets, meanwhile, could face a "triple hit" of a stronger US dollar, higher global interest rates and more volatile capital flows, Lagarde said.
"India's economy is doing better than its peers, with recent policy reforms and improved business confidence set to boost growth to 7.5 per cent in the fiscal year that starts on April 1", Lagarde said.
She welcomed the government's latest Budget as "a step in the right direction" towards mid-term fiscal consolidation while praising plans for higher infrastructure spending.
A pact between the government and the Reserve Bank of India (RBI) to formalise inflation targeting "should provide a robust institutional foundation for maintaining price stability", said Lagarde.
"But to anchor long-term growth and employ a workforce that will become the world's largest by 2030, India needs to open up its labour market to women, boost financial inclusion and invest even more in infrastructure", she said.
Lagarde, the first woman to head the Fund, cited a new IMF working paper which found that only 33 per cent of women in India worked - below the global average of 50 per cent and a comparable level in East Asia of 63 per cent.
Not only is female participation in the labour force low, but it has been declining since 2005. Lagarde called this a "huge missed opportunity" and called for urgent remedies to make it easier for women to get regular jobs.
"In addition bold reforms we need resilient implementation," Lagarde said in a podium discussion after her speech.