The IMF has at least at this stage pegged a kind of medium-term growth for India at around “7 3/4 per cent if, a lot of the structural reforms can be introduced.”
“There’s certainly no reason why India could not resume 8, 9, even higher growth path going forward, but it will take some time to introduce these measures,” Assistant Director and Mission Chief for India in the IMF’s Asian and Pacific Department, Paul Cashin told reporters on Wednesday.
Joining the conference call from India, Fund’s Senior Resident Representative, Tom Richardson, said, “We have for a couple of years and continue to urge a whole set of structural reforms that are going to be business-friendly, going to be growth enhancing. Including, particularly in the power sector.”
“In addition, land acquisition, land rights going to be very important to clarify that and to move forward in a way that allows projects to kind of be initiated clearly and implemented.
“We see a number of agricultural sector reforms to improve the efficiency of the farm sector more generally.
Observing India still has a fairly heavily state-dominated food system and the whole public distribution for food is unusual by international standards, Richardson said IMF wants to see ways of moving toward more market-based agricultural outcomes.
Direct benefit transfer, using cash transfers to provide the subsidies and the food security act are going to be a way to move in that direction, he added.
“Finally, from an infrastructure standpoint, a lot of the infrastructure will have to be public infrastructure,” he said.
Cashin also said, “We certainly see India’s near-term growth has improved, and the balance of risks is now more favourable in the economy. Helped by increased political certainty, some good policy actions, and better business confidence.”
“In terms of risks we see the main external risk to India being from a resumption of global financial market volatility.
But we also recognise that India is much better positioned to deal with such volatility than it was in the middle of 2013.
The current account deficit is much smaller now, and India has bulked up on reserves which they can certainly use to smooth consumption in the presence of such shocks,” Cashin said.
“On the domestic side, we still see weaknesses in the public sector banks in terms of NPLs and so on. Also, corporate balance sheets, given the amount of external borrowing, could also pose risks to the economy,” he said.
“On the upside, if oil prices continue at their low level, and even maintain longer than current projections indicate that would be an upside risk for India, and would definitely help contain inflation and both external and fiscal imbalances,” he added.
Noting that credit growth in India has been rather “tepid” in recent years, he said IMF would certainly hope that with the new monetary policy framework bringing down inflation.
“Focusing on that then we would see real interest rates rising, proper remuneration for savers,” he said.
“But nonetheless, we would also hope as the fiscal deficit comes down the SLR (Statutory Liquidity Ratio) requirements would continue to be reduced and we and you certainly not the governor and the RBI have been reducing the SLR numbers certainly over the last year or two.
“So we would support that continuing as the fiscal deficit comes down. Hopefully that would improve monetary policy transmission in the financial system,” Cashin said.
The IMF also justified its decision to project a lower growth rate for India as compared by the projections done by the Indian government.
“The actual projections, just to make clear, is for this fiscal year, 14-15, we’re projecting around 7 1/4 percent growth. It’s next fiscal year we’re projecting 7 1/2, 15-16,” he said when asked about the growth rate projection 8.1 to 8.5 per cent in the economic survey.
“So, what accounts for those differences? I guess there’s several reasons. We note that the CSO itself had a projection of about 7.4 per cent. We’ve come in at 7 1/4. Our previous projection under the old series was about 5 1/2, so it’s quite an increase,” he said.
Courtesy – The Hindu, India’s English Language Daily