India’s GDP to slowdown this, next fiscal too: IMF
The Hindu Business Line, March 19, 2009, Page 5
2008-09 stimulus should help bolster economic growth.
--------------------------------------------------------------------------------
Outlook
Public debt remains elevated at about 80%.
Centre deficit to rise to nearly 10%.
Inflation may fall further to 3% year-on-year by March.
Current account deficit is projected at about 3%.
--------------------------------------------------------------------------------
Our Bureau
New Delhi, March 18 The International Monetary Fund (IMF) projects India’s economy to slow down to 6.25 per cent GDP growth this fiscal and further to 5.25 per cent in 2009-10, reflecting the ‘deteriorating’ global outlook. This is lower close to one percentage point from the CSO’s advanced estimates of real GDP growth at 7.1 per cent for the current fiscal. This slowdown comes after India clocked an average growth of 8.75 per cent in the past five years.
In a statement issued in Washington on March 17 delineating the deliberations of the Executive Board of the Fund on February 6 after a staff team visited India and held talks with officials on economic developments and policies as part of its exercise under Article IV Agreement for 2008, the Fund concedes that the “uncertainty surrounding the forecast is unusually large with significant downside risks”.
The Directors concurred that the sizeable fiscal stimulus undertaken in 2008-09 should help to bolster economic growth. But, given the high ratio of public debt to GDP, significant further expansion of the deficit could raise concerns about fiscal sustainability.
Public debt remains elevated at about 80 per cent of GDP, they said adding that monetary and structural policies would have to continue to carry most of the burden of adjustment, given the high public debt-GDP ratio.
India should use the limited available fiscal space only for high-quality infrastructure and poverty-related spending and for bank recapitalisation if needed, the Fund said, adding that the general government deficit, covering the State’s and Centre’s deficit, is forecast to rise to nearly 10 per cent of GDP.
The Fund directors advised that any further short-term stimulus should be combined with fiscal reforms to safeguard medium-term debt sustainability as medium-term fiscal consolidation remains a priority, which should be anchored in a fiscal rules framework.
While hailing India’s plans for considering a strengthened successor fiscal framework to replace the extant one when it expires in 2009-10, the Fund called for the new framework to be underpinned by “comprehensive expenditure reforms and measures to broaden the tax base”. The Fund’s senior functionaries also underlined India to take advantage of falling global crude prices by moving expeditiously with its fuel subsidy reform plan, while ensuring that a well-targeted social safety net is in place.
In appreciating the strength and resilience of India’s financial system, reflected in favourable financial soundness signals, the Fund cautioned that escalating credit risk and liquidity pressure could put the financial system under strain. Hence, India should take additional preventive action, including identification of potential bank re-capitalisation needs and measures to promote early loss recognition, full disclosure of bad assets and filling of information gaps. It also emphasised on the importance of persevering with reforms to deepen and further strengthen the financial sector, foster the corporate bond market and improve banking efficiency.
While the corporate balance sheets of India Inc have been strong in recent years, slowing economic growth and tighter financial conditions could increase corporate distress, the Fund warned. Hence, the implementation of reforms to beef up corporate governance and the regulatory framework for corporate restructuring. “These measures are also important to improve the investment climate”, it said.
On inflation, it said with commodity prices waning and demand slackening, inflation is likely to fall further to three per cent year-on-year by March 2009 and to two per cent on an average in 2009-10.
The current account deficit is projected at about three per cent of GDP this fiscal, primarily due to a markedly higher oil import bill.
As export performance has worsened sharply in recent months, softer import growth is keeping the trade deficit in check. For 2009-10 the current account deficit is forecast to narrow to 1.5 per cent of GDP reflecting lower oil prices and weaker domestic demand.
The Hindu Business Line, March 19, 2009, Page 5
2008-09 stimulus should help bolster economic growth.
--------------------------------------------------------------------------------
Outlook
Public debt remains elevated at about 80%.
Centre deficit to rise to nearly 10%.
Inflation may fall further to 3% year-on-year by March.
Current account deficit is projected at about 3%.
--------------------------------------------------------------------------------
Our Bureau
New Delhi, March 18 The International Monetary Fund (IMF) projects India’s economy to slow down to 6.25 per cent GDP growth this fiscal and further to 5.25 per cent in 2009-10, reflecting the ‘deteriorating’ global outlook. This is lower close to one percentage point from the CSO’s advanced estimates of real GDP growth at 7.1 per cent for the current fiscal. This slowdown comes after India clocked an average growth of 8.75 per cent in the past five years.
In a statement issued in Washington on March 17 delineating the deliberations of the Executive Board of the Fund on February 6 after a staff team visited India and held talks with officials on economic developments and policies as part of its exercise under Article IV Agreement for 2008, the Fund concedes that the “uncertainty surrounding the forecast is unusually large with significant downside risks”.
The Directors concurred that the sizeable fiscal stimulus undertaken in 2008-09 should help to bolster economic growth. But, given the high ratio of public debt to GDP, significant further expansion of the deficit could raise concerns about fiscal sustainability.
Public debt remains elevated at about 80 per cent of GDP, they said adding that monetary and structural policies would have to continue to carry most of the burden of adjustment, given the high public debt-GDP ratio.
India should use the limited available fiscal space only for high-quality infrastructure and poverty-related spending and for bank recapitalisation if needed, the Fund said, adding that the general government deficit, covering the State’s and Centre’s deficit, is forecast to rise to nearly 10 per cent of GDP.
The Fund directors advised that any further short-term stimulus should be combined with fiscal reforms to safeguard medium-term debt sustainability as medium-term fiscal consolidation remains a priority, which should be anchored in a fiscal rules framework.
While hailing India’s plans for considering a strengthened successor fiscal framework to replace the extant one when it expires in 2009-10, the Fund called for the new framework to be underpinned by “comprehensive expenditure reforms and measures to broaden the tax base”. The Fund’s senior functionaries also underlined India to take advantage of falling global crude prices by moving expeditiously with its fuel subsidy reform plan, while ensuring that a well-targeted social safety net is in place.
In appreciating the strength and resilience of India’s financial system, reflected in favourable financial soundness signals, the Fund cautioned that escalating credit risk and liquidity pressure could put the financial system under strain. Hence, India should take additional preventive action, including identification of potential bank re-capitalisation needs and measures to promote early loss recognition, full disclosure of bad assets and filling of information gaps. It also emphasised on the importance of persevering with reforms to deepen and further strengthen the financial sector, foster the corporate bond market and improve banking efficiency.
While the corporate balance sheets of India Inc have been strong in recent years, slowing economic growth and tighter financial conditions could increase corporate distress, the Fund warned. Hence, the implementation of reforms to beef up corporate governance and the regulatory framework for corporate restructuring. “These measures are also important to improve the investment climate”, it said.
On inflation, it said with commodity prices waning and demand slackening, inflation is likely to fall further to three per cent year-on-year by March 2009 and to two per cent on an average in 2009-10.
The current account deficit is projected at about three per cent of GDP this fiscal, primarily due to a markedly higher oil import bill.
As export performance has worsened sharply in recent months, softer import growth is keeping the trade deficit in check. For 2009-10 the current account deficit is forecast to narrow to 1.5 per cent of GDP reflecting lower oil prices and weaker domestic demand.
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