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IMF moots vital steps to help India sustain 6.75% growth rate

The International Monetary Fund, or IMF, has recommended significant policy action for India to help sustain its current growth rate of 6.75 per cent and make a dent on poverty which remains high with more than a third of its population living below the poverty line.

The IMF's World Economic Outlook, released in Washington today, spells out the measures necessary to maintain the growth rate achieved in the wake of a pick-up in industrial production that began during 1999. It helped offset the slowdown of agricultural output in mid-year and growth is projected to continue at over 6 per cent in 2000.

The document says faster growth rates would require durable fiscal consolidation to raise national saving and crowd-in private investment spending, further liberalisation of foreign trade and investment flows, and additional reforms to labour markets and in the agricultural, industrial and financial sector to promote greater, efficient and export competitiveness.

These reforms need to include removal of domestic pricing distortions, improvements to bankruptcy procedures and an easing of restrictions on farm and farm size and regulations that make it difficult to shed labour.

Fiscal priorities also need to be redirected toward investment in human and physical capital, it adds.

The IMF says wholesale price inflation has fallen sharply with easier agricultural supply condition, but is projected to rebound to around 5.50 per cent in 2000.

Exports also have strengthened and continued robust export growth over the medium term is expected to help contain the current account deficit to under 2 per cent of the gross domestic product, or GDP.

The document, released on the eve of the annual spring meetings of the IMF-World Bank, says the foremost challenge for India is to make prompt and credible progress in reducing the fiscal deficit.

With budgetary slippage having occurred at, both, the central and the state government levels, the consolidated public sector is now expected to have risen to around 11 per cent of GDP in the 1999-2000 fiscal year, over 2 percentage points higher than initially budgeted, it says.

It says that India's large fiscal imbalances have pushed public debt up to 80 per cent of GDP, are crowding out private investment and are constraining for the monetary authorities to ease interest rate -- which are high in real terms--without jeopardising recent gains on the inflation front.

Although the central government budget for 2000-2001 contains some commendable structural measures the document points out, it envisages disappointingly modest fiscal adjustment in the coming year and fiscal sustainability remains a serious concern.

More so, as the new government has signalled its intention to re-establish the momentum of structural reforms, important challenges still need to be addressed, including further deregulation and privatisation, measures to increase labour market flexibility and reform of the agriculture sector, the IMF says.

UNI

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