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IMF urges India to accelerate pace of fiscal consolidation
2018.08.10
Courtesy: IMF

The International Monetary Fund (IMF) has urged India to use improved economic conditions to accelerate the pace of fiscal consolidation. In its annual assessment of the Indian economy, the IMF said the country’s economy is picking up and growth prospects look bright, one reason being the implementation of recent policies, such as the goods and services tax (GST). 

“A faster pace of consolidation would help cap the rise in long-term bond yields, reduce external and banking vulnerabilities, and improve market confidence,” IMF said in its report, prepared after consultations with the government. 

India should gradually cut subsidies gradually by 0.5 per cent of the gross domestic product (GDP) over four years, with a 0.3 per cent of GDP cut in fertilizer subsidies, elimination of fuel subsidies and a modest cut to food subsidies to achieve accelerated fiscal consolidation, suggested the global organisation. 

Further reforms and continued measures to raise tax collections will also help fiscal consolidation, it said. 

IMF retained its growth projection for India at 7.3 per cent for 2018-19 and 7.5 per cent for the following year. 

IMF stressed the need to take advantage of the projected acceleration in economic growth to achieve a public debt level of 60 per cent of GDP by 2022-23, as recommended by the Fiscal Responsibility and Budget Management Review Committee. The government in its 2018-19 budget had said it would achieve the target with a two-year delay in 2024-25. 

“On the external side, risks include increase in oil prices, tighter global financial conditions, a retreat from cross-border integration including spillover risks from a global trade conflict, and rising regional geopolitical tensions. Domestic risks pertain to tax revenue shortfalls related to GST issues and delays in addressing the twin balance sheet problems and other structural reforms,” IMF said. 

According to Ranil Salgado, head of the IMF team for India, to sustain and build on these policies and to harness the demographic dividend associated with a growing working-age population, India needs to reinvigorate reform efforts to keep the growth and jobs engine running. 

The goods and services tax should improve productivity and boost medium-term potential growth, while also creating room for the government to increase much needed social and infrastructure spending, Salgado added. (DS)

 

(source: World Bank, World Development Indicators)

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