IMF suggestions to revive India’s economy

Published: December 28, 2019

According to the International Monetary Fund (IMF) , India is currently in the midst of an economic slowdown and requires to take urgent steps to address the problem. The economic growth rate has slumped to a low of 4.5% in July-September quarter and is expected to remain sub 5% for the FY20.

Indicators suggesting slowdown

1) There has been abrupt reduction in credit expansion of non-banking financial companies
2) Weak income growth is affecting private consumption especially in case of rural areas
3) The private investment has been hindered due to difficulties in the financial sector resulting in insufficient business confidence
4) Structural and implementation issues in case of reforms like the Goods and service tax (GST)

Reforms to combat slowdown

1) The current clean up of bank balance sheets needs to be complemented with strengthening of the governance of Public sector banks (PSBs) as well as regulation of NBFCs.
2) A path fiscal consolidation path needs to be created as per the Fiscal Responsibility and Budget Management review committee to reduce the government debt to 60% of the GDP.
3) Monetary policy should maintain as easing stance while fiscal stimulus should be avoided. There is a need to undertake significant land, labour and productivity reforms.
4) The IMF has cautioned the government on having a limited space to support growth due to high levels of debt and interest payments. The medium term fiscal consolidation should be driven by rationalisation of subsidy and enhancing tax base which are required to reduce debt.

Medium term expectations

Growth is expected to rise gradually to its potential of 7.3% with commitment to targeting inflation, structural reforms which include changes in GST as well as IBC alone with liberalising flow of FDI and working to improve the ease of doing business.

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